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Table of contents :
Foreword
Acknowledgements
Table of Contents
Table of Abbreviations
Table of Cases
Table of Legislation
1. Tax Law, State-building and the Constitution
I. Introduction
II. Tax as Public Law
III. State Building
IV. The UK Constitution
V. Normative Perspectives
VI. The Approach in this Book
VII. Conclusion
2. Tax Devolution
I. Devolution in the UK Constitution
II. Tax Devolution
III. Tax in the Constitution
IV. Interim Conclusions
3. Reform and Scrutiny of Tax Policymaking
I. Constitutional Debates
II. Tax Debates
III. Improving Reform and Scrutiny
IV. Tax in the Constitution
V. Interim Conclusions
4. Taxpayer Protection
I. Constitutional Debates
II. Protection of Taxpayers
III. Tax in the Constitution
IV. Interim Conclusions
5. Europe and Beyond
I. International Law in the UK Constitution
II. International Tax
III. Brexit
IV. Tax in the Constitution
V. Interim Conclusions
6. Constitutional Disruption
I. Tax and Development
II. Taxpayer Consent
III. Institution Building
IV. Calm at Westminster
V. The Flexible Constitution
VI. Constitutional Disruption
VII. Best Hidden
VIII. A Distinctive Window
IX. Concluding Comments
Bibliography
Index

Citation preview

TAX LAW, STATE-BUILDING AND THE CONSTITUTION This monograph looks at how tax is intertwined with constitutional law and the state in the UK’s history. It looks at a variety of topics including tax devolution, scrutiny and reform of tax legislation, the protection of taxpayers and the domestic legal processing of international rules and problems. Tax Law, State-Building and the Constitution presents and interrogates five key claims. First, there is a clear overlap between the concerns of tax and constitutional lawyers. Secondly, the tax system is being deeply affected by the fast pace of constitutional change. Thirdly, decisions taken in the tax field are likely to have a reverse influence on the evolution of the constitution. Fourthly, these relationships are heavily context-dependent, with tax making all the difference to some ongoing constitutional controversies whilst having very little to do with others. Fifthly, by acknowledging tax as an important moving part within the contemporary constitution we might understand both tax and constitutional law a little better. The book therefore contributes to deeper theoretical debates on the identity of tax law as a discipline, the relevance of tax to public lawyers, the meaning of statebuilding in the recent history of a developed country and the importance of public finances to a wider sense of ‘what is going on’. These are questions that ought to command the attention of tax and constitutional law academics as well as policy makers and reformers.

ii

Tax Law, State-building and the Constitution Dominic de Cogan

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK 1385 Broadway, New York, NY 10018, USA HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2020 Copyright © Dominic de Cogan, 2020 Dominic de Cogan has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2020. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication data Names: De Cogan, Dominic, author. Title: Tax law, state-building and the constitution / Dominic de Cogan. Description: Oxford ; New York : Hart, 2020. | Includes bibliographical references and index. Identifiers: LCCN 2020010642 (print) | LCCN 2020010643 (ebook) | ISBN 9781509923540 (hardcover) | ISBN 9781509923564 (Epub) Subjects: LCSH: Taxation—Law and legislation—Great Britain. | Constitutional law—Great Britain. Classification: LCC KD5359 .D4 2020 (print) | LCC KD5359 (ebook) | DDC 343.4104—dc23 LC record available at https://lccn.loc.gov/2020010642 LC ebook record available at https://lccn.loc.gov/2020010643 ISBN: HB: 978-1-50992-354-0 ePDF: 978-1-50992-355-7 ePub: 978-1-50992-356-4 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

FOREWORD Benjamin Franklin in 1789 compared the new US Constitution’s potential for permanency unfavourably with the certainty of death and taxes. As Dr de Cogan demonstrates in this book, Franklin might equally fairly have linked the certainty of taxes to the effectiveness of the nascent federal structure and the compatibility of its constitution and institutions with the development of efficient arrangements for setting and gathering taxes. Without an effective tax system, it would have been impossible for the USA to operate institutions, manage its debts, or establish conditions for inter-state trade and commerce which allowed a single internal market to stimulate economic growth. To be effective in the long term, however, criteria for imposing tax must be just as well as efficient. It is important to foster legitimacy and acquiescence, as, without a general perception of justice, dispossession of people’s assets by rulers would be mere robbery (as St Augustine pointed out). Philosophical and political controversy surrounded, and continues to surround, decisions as to the proper limits and purposes of states’ taxing powers. Opinions about the best principles of justice conflict, and are closely related to ideas about the proper roles of states and of taxation: models of justice based on fundamental rights may (depending on which rights are regarded as fundamental) produce either a welfare state or a minimal state, significantly affecting the capacity of states to delay, though never remove, the inevitability of death and to help bolster the quality of life. Just taxation also requires that tax collectors have coercive powers to prevent payment of taxes becoming voluntary, and to limit the ability of the powerful to cast the main burden of supporting the state on the less powerful. Efficiency and fairness to some extent go hand in hand, as even a philosophically ideal tax system will fail if it cannot be made to work effectively. The trade-off between idealism and effectiveness has to be mediated through constitutions, laws and procedures. This is an ambitious book for anyone who is interested in these ideas. It brings together theoretical, practical and technical concerns to reveal the sometimes constructive, sometimes destructive tensions within and between constitutions and systems of taxation to shape the development of each. As well as being shaped by political and constitutional forces and ideas, Dr de Cogan argues that the need for a tax system to be effective, efficient and fair might help to reshape political and constitutional forces. It is a two-way process: a state cannot long sustain a tax system that operates lawfully within constitutional norms if the constitution and laws make it impossible for taxation to operate effectively. Choices have to be made, for example as to the balance between complexity of rules to achieve fairness and predictability and comprehensibility of rules to enable efficient

vi Foreword collection and equal treatment on comprehensible principles. Dr de Cogan tests this hypothesis, and to make it more than a theoretical study he tests it dynamically: instead of assuming that the state and the constitutional system remains the same through time, he recognises that states and constitutions change (sometimes, as in the case of the UK at present, fast and radically), and that this makes demands of institutions like tax systems. The study is located at a point where a number of different disciplines overlap, including constitutional law, economic theory, political theory, history, political science, administrative law, and tax law (which he treats as a part of public law). Having shown the theoretical value of taking such a multi-disciplinary approach, Dr de Cogan evaluates his hypothesis, and a number of subordinate hypotheses, through a series of UK case-studies in which he applies his multi-disciplinary method to show how the UK’s tax system has responded to, and helped to influence, constitutional developments in a period of immense churn in constitutional law and politics. The case-studies include devolution, constitutional accountability for and reform of the tax system, protection for taxpayers against unauthorised or over-zealous tax administration, and the growing domestic influence of European and international law and policy-making. The results support the view that, while taxes are essential to states, we cannot assume that an effective tax system will remain effective when the constitutional foundations on which it stands shift significantly. Studies of the formation and failure of states, as well as studies of systems of taxation, must not take for granted the extraordinary achievement of building a reasonably stable, functioning state with a reasonably efficient, reasonably fairly administered tax system on reasonably well accepted constitutional principles. It is an achievement which, as Dr de Cogan shows, does not necessarily require that everything be conceptually coherent as long as the various elements can work alongside each other in practice. Concentrating on the UK’s tax system gives focus to the argument without depriving it of wider significance. Similar analysis would probably work in any state with a reasonably effective tax system, and it could probably be applied to other important state institutions as well. Anyone seeking to understand the complex ways in which tax and the state interact, and how states work more generally (particularly how they maintain sufficient stability to survive in turbulent times) will find Dr de Cogan’s insights and his way of looking at tax through a public-law lens stimulating and enlightening. The book’s analysis will be of value to policymakers, public administrators and political theorists as well as public lawyers and tax specialists. I congratulate Dr de Cogan, and hope that other readers will gain as much from it as I have done. David Feldman 29th February 2020

ACKNOWLEDGEMENTS This book is dedicated to my wife Felicity and my daughter Ruth, without whose kindness, intelligence and humour I would not know where to start. I owe a great debt of gratitude to the many individuals with whom I have discussed this project, from early conversations with Professor David Feldman to the detailed comments on the book proposal by Professor Peter Harris, Professor Miranda Stewart, Professor Peter Cane, Dr John Snape, Dr Alex Brassey and of course the anonymous reviewers. I am especially grateful to Dr John Snape, who has been exceptionally generous with his time and insight throughout the project, helping constructively and courteously even with the gravest of errors and wrong turnings. I have received invaluable comments on draft chapters from Dr John Snape, John Whiting CBE, Anthony Inglese CB, Professor Hans Gribnau, Professor Ajay Mehrotra, Professor Amy Monahan, Professor Kristin Hickman, Dr Amy Lawton, Dr Johanna Stark, Dr Lorand Bartels, Dr Rodrigo Ormeño Pérez, Dr Alex Brassey and Ewa Plesnar. I have also been helped with reading suggestions from Professor David Feldman, Philip Baker QC, Dr Peter Sloman, Professor Penelope Tuck, Dr Rodrigo Ormeño Pérez, Frederik Heitmüller and May Hen amongst others. Material from the book has been presented at various conferences and I have learned a great deal from the contributions of attendees at the Centre for Public Law, the Tax Research Network, the Law and Society Association, the International Taxpayer Rights Conference, the Cambridge Tax Group, the Ludwig Maximilians University of Munich, the Friedrich Alexander University of Nuremberg, the University of Leiden and the University of Dubrovnik. These presentations were facilitated by generous funding from the Faculty of Law at the University of Cambridge, the Tax Research Network and the Universities of Munich, ErlangenNuremberg and Minnesota, and by the research leave permitted by the Faculty of Law and Christ’s College, Cambridge. Last but not least, I am grateful to the team at Hart Publishing for their helpfulness, availability and professionality, for their well-judged advice on matters like marketing that are not within my expertise and for their very welcome reminders to submit on time. Dominic de Cogan Ely, December 2019

viii

TABLE OF CONTENTS Foreword��v Acknowledgements�� vii Table of Abbreviations�� xi Table of Cases�� xiii Table of Legislation�� xvii 1. Tax Law, State-building and the Constitution��1 I. Introduction��1 II. Tax as Public Law��3 III. State Building��9 IV. The UK Constitution��15 V. Normative Perspectives��23 VI. The Approach in this Book��27 VII. Conclusion��30 2. Tax Devolution��31 I. Devolution in the UK Constitution��31 II. Tax Devolution��38 III. Tax in the Constitution��57 IV. Interim Conclusions��63 3. Reform and Scrutiny of Tax Policymaking��64 I. Constitutional Debates��64 II. Tax Debates��69 III. Improving Reform and Scrutiny��90 IV. Tax in the Constitution��92 V. Interim Conclusions��96 4. Taxpayer Protection��97 I. Constitutional Debates��97 II. Protection of Taxpayers��101 III. Tax in the Constitution��121 IV. Interim Conclusions��129

x Table of Contents 5. Europe and Beyond�� 130 I. International Law in the UK Constitution��131 II. International Tax��139 III. Brexit��151 IV. Tax in the Constitution��161 V. Interim Conclusions��163 6. Constitutional Disruption�� 164 I. Tax and Development��164 II. Taxpayer Consent��165 III. Institution Building��167 IV. Calm at Westminster��168 V. The Flexible Constitution��170 VI. Constitutional Disruption��170 VII. Best Hidden��172 VIII. A Distinctive Window��173 IX. Concluding Comments��175 Bibliography��177 Index��191

TABLE OF ABBREVIATIONS APD

Air Passenger Duty

BEPS

Base erosion and profits shifting

BID

Business Improvement District

BTR

British Tax Review

CCCTB

Common Consolidated Corporate Tax Base

CET

Common External Tariff

CFC

Controlled Foreign Companies

CIOT

Chartered Institute of Taxation

CIT

Corporate income tax

CJEU

Court of Justice of the European Union

CRCA

Commissioners of Revenue and Customs Act

CRMF

Customs Risk Management Framework

CTA

Common Travel Area

DBCFT

Destination-based cash flow tax

DOTAS

Disclosure of Tax Avoidance Schemes

ECA

European Communities Act

ECHR

European Convention on Human Rights

ECtHR

European Court of Human Rights

EEC

European Economic Community

ENS

Entry summary declaration

EORI

Economic operator registration and identification

ESC

Extra-statutory concession

EU

European Union

FA

Finance Act

xii Table of Abbreviations GAAR

General Anti-Abuse Rule (UK)

GAAR

General Anti-Avoidance Rule (Scotland, Wales)

GB

Great Britain

GFA

Good Friday Agreement

GLA

Greater London Authority

GST

Goods and Services Tax

HC SO

House of Commons Standing Order

HM

Her Majesty’s

HMRC

HM Revenue & Customs

HMT

HM Treasury

HRA

Human Rights Act 1998

IFS

Institute of Fiscal Studies

IRC

Inland Revenue Commissioners

KIPF

Korea Institute of Public Finance

MOU

Memorandum of Understanding

MP

Member of Parliament

NAO

National Audit Office

NFSE

National Federation of Self Employed

NICs

National Insurance Contributions

OECD

Organisation for Economic Co-operation and Development

OTS

Office of Tax Simplification

PAC

Public Accounts Committee (or Committee of Public Accounts)

PAYE

Pay As You Earn

ROI

Republic of Ireland

rUK

Rest of the UK

SI

Statutory instrument

TIEA

Tax information exchange agreement

VAT

Value Added Tax

WTO

World Trade Organisation

TABLE OF CASES Re Addie (1875) 1 TC 1�� 39, 104 Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223��120 Barclays Mercantile Business Finance v Mawson [2004] UKHL 51, [2005] 1 AC 684��89 Bowles v Bank of England [1913] 1 Ch 57, 6 TC 136�� 6, 17, 76, 105 British Coal Corporation v The King [1935] AC 500��32 British Railways Board v Pickin [1974] AC 765��87 Caledonian Railway v Banks (1880) 1 TC 487�� 39, 104 Cameron v HMRC [2012] EWHC 1174 (Admin); [2012] STC 1691��117 Cape Brandy Syndicate v CIR [1921] 1 KB 64, (1920) 12 TC 358�� 73, 105 Christian Institute v Lord Advocate [2016] UKSC 51��135 CIR v Gartside [1968] AC 553��88 Coltness Iron Company v Black (1881) 6 App Cas 315�� 39, 104 Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374 HL��100 Furniss v Dawson [1984] AC 474��89 HMRC v William Grant & Sons Distillers; Small v Mars UK [2007] UKHL 15, [2007] 2 All ER 440��89 International Transport Roth GmbH v Secretary of State for the Home Department [2002] EWCA Civ 158��100 IRC v Commerzbank AG [1990] STC 285��131 IRC v Duke of Westminster [1936] AC 1, 19 TC 490��106 Jones v Garnett [2007] 1 WLR 2030��94 Mandalia v Secretary of State for the Home Department [2015] UKSC 59, [2015] 1 WLR 4546��117 Martin v O’Sullivan [1984] STC 258��88 Mayes v HMRC [2011] EWCA Civ 407, [2011] STC 1269��114 Partington v AG (1869) LR 4 HL 100�� 73, 105 Pepper v Hart [1993] AC 593�� 108, 113 R v Hampden (the Case of Ship Money) (1637) 3 St Tr 825�� 1, 6, 15–17, 23, 160 R (HS2 Action Alliance) v Secretary of State for Transport [2014] UKSC 3��132 R (Jackson) v Attorney General [2005] UKHL 56, [2006] 1 AC 262�� 17, 75

xiv Table of Cases R (Miller) v Secretary of State for Exiting the European Union [2017] UKSC 5, [2017] 1 All ER 593��28, 33–34, 45, 57, 60, 63, 99, 134, 136, 138, 151, 153, 161 R v IRC ex p MFK Underwriting Agents [1990] 1 WLR 1545, 1569��118 R v IRC ex p National Federation of Self Employed and Small Businesses Ltd [1982] AC 617�� 70, 107 R v IRC, ex parte Rossminster [1980] AC 952�� 124, 167 R v IRC ex p Unilever [1996] STC 681��117 R v Secretary of State for Foreign Affairs, ex parte World Development Movement [1995] 1 WLR 386��123 R v Secretary of State for the Environment, ex p Hammersmith and Fulham London Borough Council [1991] 1 AC 521��100 R v Secretary of State for the Environment, ex p Nottinghamshire County Council [1986] AC 240��100 R v Secretary of State for Transport Ex p. Factortame Ltd (No.2) [1991] 1 AC 603��133, 137, 161, 175 R (on the application of UNISON) v Lord Chancellor [2017] 4 All ER 903�� 116, 125 R (Wilkinson) v CIR [2005] UKHL 30, [2005] 1 WLR 1718��88 WT Ramsay v IRC [1982] AC 300�� 88, 107 Re Buick’s Application for Judicial Review [2018] NICA 26��51 Reference by the Attorney General for Northern Ireland of devolution issues to the Supreme Court pursuant to Paragraph 34 of Schedule 10 to the Northern Ireland Act 1998 (No 2) (Northern Ireland) [2019] UKSC 1��51 RFC 2012 (in liquidation) (formerly Rangers Football Club) v Advocate General for Scotland [2017] UKSC 45, [2017] 4 All ER 654��89 The UK Withdrawal from the European Union (Legal Continuity) (Scotland) Bill – A Reference by the Attorney General and the Advocate General for Scotland [2018] UKSC 64��35 Thoburn v Sunderland City Council [2002] EWHC 195 (Admin), [2003] QB 151�� 99, 132, 161 Turners (Soham) v HMRC [2019] UKFTT 0131 (TC)��94, UBS AG v HMRC; DB Group Services (UK) v HMRC [2016] UKSC 13, [2016] 3 All ER 1�� 89, 114 UK Uncut Legal Action v HMRC [2013] EWHC 1283 (Admin)�� 70, 119 Vestey v IRC (no 2) [1979] Ch 198, [1978] STC 567�� 16, 70, 123 Vestey v IRC (No 2) [1980] AC 1148��70

Table of Cases xv EU Cases Apple (Case SA.38373) Commission Decision (EU) 2017/1283 [2004] OJ L 187/1��152 Case C-446/03 Marks & Spencer plc v Halsey [2005] ECR I-10837 [2006] Ch 184��127 Case C-6/64 Costa v ENEL [1964] ECR 585��137 ECtHR Cases Burden v United Kingdom (App no 13378/05) [2008] STC 1305, 47 EHRR 857��117 Ferrazzini v Italy (App no 44759/98)[2001] STC 1314 (2002) 34 EHRR 45��115–16, 124, 128–29, 145, 171 Guberina v Croatia (App no 23682/13) (2018) 66 EHRR 11��117 Jussila v Finland (App no 73053/01) [2009] STC 29, (2007) 45 EHRR 39��116 National and Provincial Building Society v UK (App no 21319/93) [1997] STC 1466, 25 EHRR 127��116

xvi

TABLE OF LEGISLATION Legislation of UK and Predecessors Magna Carta 1215��6, 15 Bill of Rights 1688�� 6, 16–17, 21, 23, 75–76 Art 1�� 104, 175 Art 4��69, 77, 125, 136, 143, 150, 175 Acts of Union 1707��39 Acts of Union 1800��173 Reform Act 1832 ��37 Income Tax Act 1842�� 94, 104, 107 British North America Act 1867��32 Customs and Inland Revenue Act 1874 ss 8–10��104 Customs and Inland Revenue Act 1878 s 12��105 Finance Act 1894 s 17��21 Finance (1909–10) Act 1910��106 s 66��21 Parliament Act 1911��16, 21, 23, 28–29, 71, 77, 125, 168 s 1�� 7, 11, 17, 65 s 1(1)�� 73, 75 s 1(2)�� 75–76 Provisional Collection of Taxes Act 1913��16 Munitions of War Act 1915 s 4 ��140 s 5��140 Finance (no 2) Act 1915 Part III��140 Sch IV, Pt I, para 5��107 Finance Act 1920��107 Part V��140 Government of Ireland Act 1920��37 Finance Act 1922��107

xviii Table of Legislation Statute of Westminster 1931��31 s 4��32 Income Tax Act 1945��107 United Nations Act 1946��132 Finance Act 1965 Part IV��140 Law Commissions Act 1965 s 3��68 Provisional Collection of Taxes Act 1968��16 s 1��72 s 1(3)��72 s 1(4)��72 s 3��72 s 5��72 European Communities Act 1972�� 132, 137, 151–52, 161 s 2(1)��133, 138, 142 Local Government (Scotland) Act 1975 s 7B��42 Rates (Northern Ireland) Order 1977/2157��50 Canada Act 1982 s 2��32 National Audit Act 1983 s 6(1)��82 Local Government Act 1985 s 1��56 Finance Act 1994 Part 4, Ch 3��110 Government of Wales Act 1998�� 33, 46 Human Rights Act 1998�� 102, 132–33, 143 s 2��127 s 3��143 s 4��100 s 6��99 s 6(2)��100 s 10��100 Northern Ireland Act 1998��33 Sch 2 para 9��50 Scotland Act 1998��33–34, 46, 48, 50 s 29(2)(d)��135 s 57(2)��135 Part IV��39 Part 4A��43 s 80B��42 Schedule 5, Part II, para 3��39

Table of Legislation xix National Assembly for Wales (Transfer of Functions) Order 1999 art 2��46 Sch 1��46 Capital Allowances Act 2001��107 Finance Act 2004 Part 7��110 Commissioners of Revenue and Customs Act 2005 s 5�� 70, 122 Finance Act 2006 s 173��149 Government of Wales Act 2006��47 s 103��46 s 105��46 s 108��46 Sch 7, Part 1, para 12��46 Sch 7A, Part 2, para 15��48 International Mutual Administrative Assistance in Tax Matters Order 2007, SI 2007/2126��149 Business Rate Supplements Act 2009��54 Finance Act 2009 s 92��118 Taxation (International and Other Provisions) Act 2010��142 s 2��141, 147–48 Fixed Term Parliaments Act 2011 s 2��71 Localism Act 2011��38 International Tax Enforcement (Grenada) Order 2011, SI 2011/1687��149 International Mutual Administrative Assistance in Tax Matters Order 2011, SI 2011/1079��149 Finance Act 2012 Schedule 23��52 Scotland Act 2012 s 23��41 s 23(3)(a)��43 s 28��41 s 29��41 s 30��41 s 31��41 Sch 3��41 Finance Act 2013 Part 5��169 s 207(2)��120 s 218��88 Sch 45��88

xx Table of Legislation Finance Act 2014 Part 4, Ch 2��112 s 204(4)��112 s 205(3)��112 Part 4, Ch 3��110 Part 5��113 ss 285–288��111 Schs 34–36��113 Wales Act 2014 Part 2��47 Corporation Tax (Northern Ireland) Act 2015�� 53, 58 Finance (no 2) Act 2015��112 s 51��113 Sch 8��113 Sch 8 para 6��113 Finance Act 2016��111 s 46��53 s 158��112 Part 12��87 Schedule 25��87 Criminal Finances Act 2017 Part 3��113 European Union (Notification of Withdrawal) Act 2017��138 Finance (no 2) Act 2017 ss 34–37��113 Schs 11–12��113 Wales Act 2017 s 17��48 European Union (Withdrawal) Act 2018 ss 2–7��152 s 12��37 Northern Ireland (Executive Formation and Exercise of Functions) Act 2018��51 Scotland Act 1998 (Specification of Devolved Tax) (Wild Fisheries) Order 2018��42 Wales Act 2014 (Commencement No 2) Order 2018��48 Devolved UK legislation Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012��52 Land and Buildings Transaction Tax (Scotland) Act 2013��41

Table of Legislation xxi Landfill Tax (Scotland) Act 2014�� 40–41, 59 Revenue Scotland and Tax Powers (Scotland) Act 2014��43 Tax Collection and Management (Wales) Act 2016��48 Landfill Disposals Tax (Wales) Act 2017�� 47–48 Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017��47 Non-Domestic Rate (Scotland) Order 2019��42 EU legislation Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States [2003] OJ L157/49��142 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax [2006] OJ L347/1.��142 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States [2009] OJ L310/34��142 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States [2011] OJ L345/8��142 Regulation (EU) 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code [2013] OJ L269/1 Arts 38–41��154 Art 201��154 Council Directive (EU) 2011/16 of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC [2011] OJ L64/1��149 Ch II Section II��149 Consolidated version of the Treaty on European Union [2012] OJ C326/13 Art 50��34 Consolidated version of the Treaty on the Functioning of the European Union [2012] OJ C326/47 Art 28��142 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market [2016] OJ L193/1��130

xxii Table of Legislation Art 5��146 Art 6��146 Other legislation Irish Nationality and Citizenship Act 2004��156 International treaties Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ireland, 10 April 1998 Art 1(ii)��157 Art 1(vi)��156 European Convention on Human Rights �� 95, 100, 102, 118, 123, 132–33, 135, 143 Art 2�� 99, 115 Art 2(2)��99 Art 3�� 99, 115 Art 4��115 Art 6��115–17, 120, 124, 129, 171 Art 8��116 Art 14��117 Art 1 Protocol 1�� 115, 125, 127–28 General Agreement on Tariffs and Trade 1994 Art I��160 Art XXIV��160 Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting, 2016�� 141, 147 Multilateral convention on mutual administrative assistance in tax matters, 1988, updated 2010 Art 6 ��148 Art 7��148 Vienna Convention on the Law of Treaties Art 31��131 Art 32��131

1 Tax Law, State-building and the Constitution I. Introduction This book is about the position of tax law within the UK constitution. At first sight, this is familiar ground. It is well-known that the constitution has been shaped by a number of historical disputes involving the public finances, including the Magna Carta, the Petition of Right, the Case of Ship Money,1 the Glorious Revolution and the People’s Budget of 1909. Curiously, though, much less has been said about the relevance of tax to the contemporary constitution, despite some pioneering work by scholars such as John McEldowney and Tony Prosser, and some recent intimations that Finance Bills might once again find themselves at the centre of wider constitutional controversies. The ambition of this book is not only to examine the constitutional aspects of tax law but to do so in a dynamic setting. This point has two aspects. On the one hand, constitutional change might destabilise otherwise settled areas of tax law. On the other hand, the way in which taxes are imposed, administered and adjudicated might help to shape the constitution as it develops. This latter possibility is perhaps more obvious in the context of the historical events, listed above, but is worth searching for in the contemporary UK despite problems of proof.2 A different way of putting the same point is that there is potential value in examining ongoing events in the UK as a transient period in history, whilst recognising that we lack the benefit of hindsight. A useful starting point for this type of project is the seminal essay of Joseph Schumpeter, The Crisis of the Tax State3 in which revenues are treated both as fundamental to the existence and nature of a state and as subordinate and instrumental to that state in normal times. This points to a further aim of the present book, which is to enquire whether there is anything in the contemporary UK tax system that could be described in terms of ‘state building’, in the sense of providing

1 R v Hampden (the Case of Ship Money) (1637) 3 St Tr 825. 2 Refer to text between nn 147 and 148, below. 3 JA Schumpeter, ‘The Crisis of the Tax State’ in R Swedburg (ed), The Economics and Sociology of Capitalism, (Princeton, Princeton University Press, 1991).

2 Tax Law, State-building and the Constitution the revenues and structures within which states are able to form, survive and develop. In turn, this leads me to doubt the otherwise useful categorisation by Avi-Yonah of the functions of taxation, being revenue-raising, redistribution and regulation.4 Keeping the state afloat and shaping its future evolution does not fit easily within any of these categories. This point is revisited in more detail below and in chapter six, where there is a fuller discussion of how constitutional law and state building might relate in a UK tax context. To summarise the argument of the book, compelling evidence is found that constitutional change within the UK is relevant to a proper understanding of our evolving tax system. The converse suggestion, that decisions made in the tax field may influence wider constitutional developments, is predictably much more difficult to substantiate. Nevertheless, the evidence reviewed within chapters two to five of this book allows the following spectrum of conclusions to be made. At one extreme, it can be said with confidence that tax and trade law considerations have exerted a decisive influence on the controversies surrounding the status of the Irish border post-Brexit. At the other extreme, it can be said with similar confidence that the attempts to improve tax scrutiny and reform at Westminster, however welcome they may be, have limited salience outside the tax field. Between these extremes, there are cases in which there is persuasive evidence of the relevance of tax to wider constitutional questions. A good example is the pursuit by the Scottish institutions of broader tax powers, seemingly with the aim of deepening the devolution settlement. There are also cases in which the evidence is more equivocal but nevertheless indicates the potential for further investigation. For instance, the weakness of human rights law in the face of rapidly accumulating HMRC powers is, at the least, consistent with wider anxieties about the potential loss of previously secure revenue streams and concerns about the maintenance of state capacity more generally. This conclusion, that taxation does indeed play a role in constitutional evolution but that the evidence is stronger in some places than others, is intuitively appealing on a number of grounds. First, drawing on Schumpeter’s point, revenueraising is critical to the establishment of a state but is thereafter subject to the usual constitutional arrangements of that state. Secondly, many constitutional crises seem to involve the channelling of wider discontent into tax disputes, which in return influence how those disputes are perceived. This reflects the sometimesemotive nature of tax politics but also suggests that framing grievances in tax terms helps them to be taken seriously. Thirdly, legislators, judges and others often show a special sensitivity to the integrity of revenues that is consistent with their importance to the maintenance of state capacity. It may be going too far to describe this as a bias in the law, but there are certainly instances described throughout the book where the public interest in reliable revenues is conspicuously well-protected. Fourthly, the global environment within which revenues are raised is changing rapidly, threatening established tax bases and bringing into question the ability of states to survive in their current form.

4 RS

Avi-Yonah, ‘The Three Goals of Taxation’ (2006) 60(1) Tax L Rev 1–28.

Tax as Public Law 3 The approach of this book may be broadly consistent with our intuitions, yet the organisation of topics by reference to constitutional law is highly unusual in a book on UK taxation. It is therefore hoped that this book will provide a helpful complement to volumes covering more familiar topics such as the structure of income taxation.5 The conclusions are also intended to begin, rather than to close, a line of enquiry, and as such have an interim quality. In particular, there would be value in testing the idea of a tax influence on the constitution by reference to detailed empirical evidence, whilst for reasons of clarity and scope the reliance here is almost exclusively on legal and other published materials. It is also argued below that the absence of a canonical constitutional document in the UK belies important commonalities with the issues faced by other jurisdictions. Given that constitutional debates in the UK are relatively uncontained by textual particularities, it is quite possible that non-UK readers will disagree with me as to what counts as ‘constitutional’ yet recognise many of the substantive issues. The potential for future comparative work here is both obvious and exciting. The structure of the book is self-explanatory. The remaining sections of this chapter defend the premise of looking at taxation from a constitutional perspective and review the relevant literature, looking in turn at the public law and constitutional elements of taxation; state-building; the UK constitution; normative approaches to constitutions; and the approaches taken to the case studies in chapters two to five. Those chapters look respectively at tax devolution within the UK; the institutions for tax reform and legislative scrutiny in Westminster; taxpayer protection; and the position of EU and international tax law within the domestic constitution. It is not claimed that these are the only topics that could have been investigated and no attempt has been made to provide a comprehensive, textbook-style description of the law. The aim has instead been to enlighten the main themes of the book by reference to a wide range of constitutional topics, and with an emphasis on those that are particularly important at the time of writing. Chapter six concludes and makes some further comments on the relevance of state-building considerations to the twenty-first century UK.

II. Tax as Public Law To many people approaching the subject for the first time, tax law presents a frightening prospect of abstruse technicalities, statutory detail and underlying principles distorted out of all recognition by decades of cat-and-mouse games between tax avoiders and tax policymakers. As is sometimes the case with stereotypes, there is a grain of truth here, but what is easily missed is that tax law plays a part in the 5 This echoes the point made forcefully by Lynne Oats that there are many different ways of approaching tax, not just technicalities and calculations. In her words, ‘positivist enquiry … produces some significant and important insights. However, tax is very much a social and institutional practice and this needs to be recognised as such to a much greater extent’. L Oats, ‘Tax as a social and institutional practice’ in L Oats (ed), Taxation: a Fieldwork Research Handbook (Abingdon, Routledge, 2012) 5.

4 Tax Law, State-building and the Constitution wider sweep of history, politics and constitution-building. As recently as 2012, the leading textbook in the field was able to claim that: Although the power to tax has been at the very centre of some of our major constitutional law disputes, including the execution of a King, there is a lack of engagement with public law issues.6

The 2019 edition of the same textbook clarifies that ‘until relatively recent times there has been a lack of engagement …’.7 However recent this development may be, the tax literature already examines a rich variety of public law issues, including the following: • the application of administrative law doctrines to tax problems, including the case-law on taxpayers’ legitimate expectations and the extra-statutory concessions of tax authorities;8 • the institutions of government involved with the creation and administration of tax;9 • the application of underlying public law principles such as the rule of law to taxation;10 • the relative importance and roles of tax law, political ideology and economic planning;11 • the wider significance of tax for society, including the construction of social roles based on gender, race, sexual orientation, social class and otherwise;12 • the role of tax law in the context of globalisation and the emergence of transnational law.13 These developments in the literature are exciting and raise some serious questions about the nature of tax law as a scholarly discipline. The first and perhaps most important point is that we should not necessarily assume that the objective of tax law is to raise revenues and then evaluate legal rules by reference to their success in achieving this objective in a rational and internally consistent manner. 6 J Tiley and G Loutzenhiser, Revenue Law, 7th edn (Oxford, Hart Publishing, 2012) 30. 7 G Loutzenhiser, Tiley’s Revenue Law, 9th edn (Oxford, Hart Publishing, 2019) [2.1]. 8 See eg S Daly, ‘The life and times of ESCs: a defence?’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 8 (Oxford, Hart Publishing, 2017). 9 See eg T Prosser, The Economic Constitution (Oxford, Oxford University Press, 2014) ch 4. 10 See eg C Evans, J Freedman and R Krever, The Delicate Balance: Tax, Discretion and the Rule of Law (Amsterdam, IBFD, 2011); AP Dourado (ed), Separation of Powers in Tax Law (Amsterdam, EATLP, 2010); S Griffiths, ‘Tax as public law’ in A Maples and A Sawyer (eds), Taxation issues: Existing and emerging (Christchurch NZ, Centre for Commercial and Corporate Law, 2011) 215–33. 11 See eg J Snape, The Political Economy of Corporation Tax (Oxford, Hart Publishing, 2011). 12 See eg AC Infanti and BJ Crawford, Critical Tax Theory: an Introduction (Cambridge, Cambridge University Press, 2010); BJ Crawford and AC Infanti, Feminist Judgments: Rewritten Tax Opinions (Cambridge, Cambridge University Press, 2017); A Mumford, Fiscal Sociology at the Centenary: UK Perspectives on Budgeting, Taxation and Austerity (Cham, Palgrave Macmillan, 2019). 13 See eg S Picciotto, Regulating Global Corporate Capitalism (Cambridge, Cambridge University Press, 2011).

Tax as Public Law 5 What if tax law in fact has more than one purpose, or many purposes?14 In this case, the rules needed to implement these various purposes might look very different, and apparent irrationalities in the rules might not reflect poor design so much as underlying disagreements about what a tax system should seek to achieve in the first place.15 This contingency of legal rules on political disputes around the relevant underlying purposes is a feature of public law more generally. For example, it is readily obvious that the internal consistency of anti-terrorism regulation is both important and secondary to the underlying purposes of preventing terrorism and protecting the human rights of suspects.16 In turn, both of these purposes are sensitive to changing context and attitudes, with the result the rules needed to implement a reasonable balance between them are unlikely to remain constant. The second consequence of the recent turn to public law in the tax literature is closely linked. If we study tax rules in isolation from their context, ignoring for the moment their political, economic and sociological significance, then it is difficult to identify opportunities for meaningful interdisciplinary work involving these various fields. If instead we see the lawyer’s task of making sense of rules as being inherently vulnerable to changes of context, for example in the sense that the most sensible ways of regulating tax before and after an important election may be very different things, then interdisciplinary questions flood in. What types of context are important, under what circumstances, how are they relevant to legal decisionmaking, what are the most illuminating ways of examining them, and how do we navigate the terminology used in various ways by different disciplines?17 To see taxation through public law lenses is therefore to increase the permeability of legal scholarship to the insights of other disciplines, and potentially also to increase our own relevance to these other fields.18 The third point is simpler but critically important to the present book, which is that radically different ranges of issues are highlighted by technical and public law approaches to tax respectively. Tiley’s Revenue Law19 is fairly typical of tax 14 For an indication of the sheer range of tasks performed by tax authorities, see K Hickman, ‘Administering the Tax System We Have’ (2014) 63 Duke LJ 1717; P Tuck, D de Cogan and J Snape, ‘A tale of the merger between the Inland Revenue and HM Customs & Excise’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 9 (Oxford, Hart Publishing, 2019). 15 In some cases, the appropriate response might be to demand that politicians and policymakers decide on the problem engaged by the rule and then solve the problem rationally. Where this is impossible, we may simply have to accept that internal inconsistencies in tax rules serve as temporary and unsatisfactory compromises of political disagreements that for the time being cannot be resolved. Indeed, something of this point can be seen in the commitment of ‘optimal tax theory’ to identify the most rational way of organising tax, not in the abstract but in the light of the relevant political and other constraints: see Institute of Fiscal Studies, Tax by Design: the Mirrlees Review (Oxford, Oxford University Press, 2011) 35–39. 16 See M Elliott and R Thomas, Public Law, 3rd edn (Oxford, Oxford University Press, 2017) 14–19. 17 D Massey, ‘Fiscal tribology’ (Tax policy conference, Cambridge, April 2018). 18 For example, the importance not only of law but of legislation to sociological study is underlined in TC Halliday and BG Carruthers, ‘The Recursivity of Law: Global Norm Making and National Lawmaking in the Globalization of Corporate Insolvency Regimes’ (2007) 112(4) American Journal of Sociology 1135–1202. I am grateful to May Hen for drawing my attention to this literature. 19 Loutzenhiser, above n 7.

6 Tax Law, State-building and the Constitution textbooks in devoting most of its space to income tax, capital gains tax, inheritance tax and corporation tax. There is some coverage of economic theory, public law questions, international and European Union tax and savings tax regimes, but very little on VAT, customs duties or excise duties. The largest section, on income tax, sets out basic concepts and background before looking in turn at the taxation of employment income, business income, income from land, savings income, miscellaneous income and the mysterious-sounding category of ‘Income Not Otherwise Charged’. This is a helpful way of expounding the operation of direct taxation, but there is limited overlap with the issues listed above as being relevant to public law. It follows that the use of public law rather than technical tax considerations as the organising principle of a book might offer a new window on the UK tax system and bring together topics that are often overlooked altogether let alone discussed in the same place.

A. Tax and the Constitution If public law in general provides an intelligible way of looking at taxation, what about constitutional law in particular? At first sight, the constitutional relevance of tax is obvious. Indeed, many of the key constitutional moments in UK tax history have either revolved around tax or at least involved tax in a prominent way. The provision of royal finance was of critical importance to the Magna Carta of 1215, the Case of Ship Money20 and the Bill of Rights 1688.21 More recently, the relative influence of the House of Commons and the House of Lords over tax matters was central to the controversies surrounding Lloyd George’s ‘People’s Budget of 1909, the Parliament Act 1911 and the case of Bowles v Bank of England,22 the last of which confirmed the unlawfulness of the collection of income tax revenues by the government without the specific authorisation of Parliament.23 The curious point, though, is that tax appears not to be of everyday constitutional importance. It does not feature strongly in discussions of modern-day constitutional law, and for the most part operates as normal law within the usual constitutional constraints. Tax legislation is designed by HM Treasury (HMT) with assistance from HM Revenue & Customs (HMRC), the Office of Parliamentary 20 Case of Ship Money, above n 1. 21 See generally E Wicks, The Evolution of a Constitution: Eight Key Moments in British Constitutional History (Oxford, Hart Publishing, 2006) ch 1; J Brewer, The Sinews of Power: War, Money and the English State, 1688–1783 (London, Unwin Hyman, 1989) ch 4; M Braddick, State Formation in Early Modern England, c.1550–1700 (Cambridge, Cambridge University Press, 2000) ch 6; A Blick, Beyond Magna Carta: a Constitution for the United Kingdom (Oxford, Hart Publishing, 2015), Part I; M Braddick, ‘Case of Ship-Money (R v Hampden) (1637): Prerogatival Discretion in Emergency Conditions’ in J Snape and D de Cogan (eds), Landmark Cases in Revenue Law (Oxford, Hart Publishing, 2019). 22 Bowles v Bank of England [1913] 1 Ch 57, 6 TC 136. 23 See generally M Daunton, Trusting Leviathan: The Politics of Taxation in Britain, 1799–1914 (Cambridge, Cambridge University Press, 2007) ch 11; M Daunton, ‘Thomas Gibson Bowles v Bank of England (1913): A Modern John Hampden?’ in J Snape and D de Cogan, above n 21; C Stebbings, The Victorian Taxpayer and the Law (Cambridge, Cambridge University Press, 2009) ch 6.

Tax as Public Law 7 Counsel and respondents to formal consultations, amongst others. It is enacted by Parliament in the unusual configuration established under the Parliament Act 1911, which prevented the House of Lords from amending, or exercising a power of veto over, ‘money bills’.24 It is administered and enforced by HMRC, with disputes either being handled internally, by alternative dispute resolution or by the tribunals and courts. These basic features of tax regulation are squarely within the scope of existing arrangements, applying conventional understandings of the constitution rather than challenging them. How is it possible that a field of law so closely enmeshed in political and constitutional history can be so invisible when the contemporary UK constitution is described? This question is complicated in the UK by the absence of a canonical constitutional document and the consequent disagreements about exactly what the constitution is. Nevertheless, a helpful definition, which should command a sufficient level of consensus for present purposes, can be found in the work of David Feldman. To paraphrase an admittedly more complex argument, he explains that constitutions have the following four functions: 1. to establish institutions and provide them with functions, powers and duties; 2. to prevent, restrain and redress improper conduct on the part of those institutions; 3. to confer legitimacy on otherwise controversial acts (so distinguishing, for example, an assault from an arrest); and 4. to allow for flexibility in the face of underlying social and political change.25 This scheme is particularly helpful in downplaying the differences between the constitutions of the UK and of other comparable states,26 but also starts to suggest some answers to our questions about tax. The securing of reliable sources of funding is a prerequisite to the first of the four constitutional functions and has itself been institutionalised in the form of HMT, HMRC and so forth. Whilst the fourth function indicates flexibility, it is highly undesirable for the basic elements of state finance to fluctuate to easily or too wildly. The reason why tax is associated with constitutional crises, then, may simply reflect the fact that shocks to the orderly collection of revenues represent a grievous threat to the capacity of state institutions to perform their most basic tasks. The reason why tax is not associated 24 Parliament Act 1911, s 1. 25 D Feldman, ‘None, one or several? Perspectives on the UK’s constitution(s)’ [2005] CLJ 329. cf J Avery Jones, ‘Administrative income tax legislation: a century of the Revenue following the letter (but not the spirit) of the legislation’ [2015] BTR 28: ‘There was at that time a strong feeling that a centrallyadministered tax containing inquisitorial elements was unconstitutional – there being an unwritten constitution this is effectively a grandiose label for what the public would tolerate’. 26 That is, because whether or not a constitution is written in the conventional sense, it must certainly perform these four functions, though the means of doing so may differ. For instance, in many jurisdictions, the word ‘constitutional’ when applied to tax connotes the ability of courts to test primary tax legislation against constitutional principles and to strike down that legislation if it does not comply. This is not possible in the UK at least under normal circumstances, yet the UK courts certainly do draw on underlying principles in order to perform Feldman’s second function in the tax field: Refer to this volume, 117.

8 Tax Law, State-building and the Constitution with crises more frequently or more recently may likewise reflect our good fortune or good planning in developed states, with revenue shocks either not happening very often or being adequately managed before they turn into fully-blown constitutional crises. These suggestions gain credibility from a further observation, which is that the law often seems to show considerable deference to the stability of revenues, especially when very substantial sums are at stake. For example, HMT has powerful mechanisms for retaining control over subnational taxation;27 the Office of Tax Simplification (OTS) has closer institutional ties to central government than the Law Commission;28 there are broad qualifications on the application of human rights law to taxpayers;29 and restitution of overpaid tax liabilities is more controversial than most other types of restitution.30 These features of the law each help to reduce risks to revenues; cumulatively, they look conspicuously protective, especially when taken together with the principle of administrative law that the courts will not enquire too closely into decisions of ‘macro-economic policy’.31 One source of potential confusion in the literature is the usage of the word ‘constitutional’, not as a narrow legal term or even in the accommodative but still relatively precise sense of Feldman’s scheme, but instead as a compendious word to denote the sum total of a state’s fiscal arrangements. This approach, which is often traced to James Buchanan’s work and in particular to The Power to Tax: Analytical Foundations of a Fiscal Constitution,32 is explained by Buggeln, Daunton and Nützenadel: Fiscal policy is especially prone to political and ideological conflicts. The fiscal structure is much more than a legal or administrative problem, but rather mirrors the political and social constitution of a country.33

The term ‘constitution’ in this sense is almost synonymous with a social contract, and indeed it is no surprise to see contractual reasoning being used throughout The Power to Tax.34 Neither social contract reasoning nor Brennan’s and Buchanan’s version of it are beyond controversy,35 and in any case a distinction 27 Refer to this volume, 53. 28 Refer to this volume, 86. 29 Refer to this volume, 115. 30 This last topic is not covered in the present book, but refer generally to S Elliott, B Häcker and C Mitchell (eds), Restitution of Overpaid Tax (Oxford, Hart Publishing, 2014). 31 Refer to this volume, 100. 32 G Brennan and JM Buchanan, The Power to Tax: Analytical Foundations of a Fiscal Constitution (Cambridge, Cambridge University Press, 1980). 33 M Buggeln, M Daunton and A Nützenadel, ‘The Political Economy of Public Finance since the 1970s: Questioning the Leviathan’ in M Buggeln, M Daunton and A Nützenadel (eds), The Political Economy of Public Finance Taxation, State Spending and Debt since the 1970s (Cambridge, Cambridge University Press, 2017) 29–30. 34 See eg Brennan and Buchanan, above n 32, ch 1.6, which begins as follows: ‘Our whole discussion depends critically on the assumption that constitutional choice is relevant, that the behaviour of governments … can be constrained by rules laid down at a constitutional level of deliberation.’ 35 See further IW Martin, AK Mehrotra and M Prasad, ‘The Thunder of History: The Origins and Development of the New Fiscal Sociology’ in IW Martin, AK Mehrotra and M Prasad (eds), The New Fiscal Sociology: Taxation in Comparative and Historical Perspective (Cambridge, Cambridge University Press, 2010) 9–10.

State Building 9 is maintained in the present book between broad political and social questions of ‘state building’ and points of ‘constitutional law’ falling within the four functions described above. This is not only a point of terminological clarity but will become important to the argument in chapter six that state building problems do not always develop into crises in constitutional law and indeed that there are important instances where the UK constitution is notably resilient in the face of wider challenges.

III. State Building A. The Crisis of the Tax State On the subject of these wider challenges, there are now substantial literatures in historical, sociological, philosophical, development and critical traditions that explain how taxes have influenced the construction of states as well as subsequent social relations within those states. There is no easy starting point in exploring this literature, but by far the most obvious is Joseph Schumpeter’s seminal treatise of 1918, The Crisis of the Tax State.36 This essay, written just before Schumpeter’s short tenure as Minister of Finance in the Republic of German-Austria, draws an important distinction between the initial establishment of a state and its routine operation thereafter. In the former phase the securing of finance is paramount: We have seen that without financial need the immediate cause for the creation of the modern state would have been absent … Taxes not only helped to create the state. They helped to form it. The tax system was the organ the development of which entailed the other organs.37

This account is striking in the clarity with which it places tax at the centre of state-building. However, it should not be misunderstood as a crude claim that all constitutional phenomena are somehow tax-driven, flattering though this might be to tax scholars. To the contrary, once a state has been established, fiscal matters move into the background: It goes without saying that there is more to the state than the collection of taxes necessitated by the common need that was their origin. Once the state exists as reality … the state develops further and soon turns into something the nature of which can no longer be understood merely from the fiscal standpoint, and for which the finances become a serving tool. If the finances have created and partly formed the modern state, so now the state on its part forms them and enlarges them …38

36 Schumpeter, above n 3. For a much more detailed review of Schumpeter’s work as it relates to taxation, see Mumford, above n 12. 37 ibid, 108. 38 ibid, 110–11.

10 Tax Law, State-building and the Constitution This is a simple but profound insight, that one of the key features of state-building is to transform the search for finances from a prerequisite into an instrument of state. This starts to explain how tax has played such a vital role in constitutional history yet figures so rarely in contemporary discussions of the constitution. In normal times it is obviously the wider constitutional settlement, coloured by prevailing political debates, that provides the setting within which the tax system must operate, not the other way around. Nevertheless, even after the initial founding of a state, tax does not entirely lose its status as ‘both a factor and a symptom of a process of social change’.39 In particular, ‘every significant indirect tax enforces technical and commercial changes in the productive apparatus’,40 a point that is not entirely redundant even after the widespread adoption of broad-based VATs and GSTs. This understanding that decisions about whom, what and how to tax both reflect and influence social norms is of foundational importance for both fiscal sociologists and critical theorists. To take a wellknown example from the UK, VAT has been charged in full on female sanitary products, in contrast to the zero-rating available for many supposed necessities such as food, children’s clothing and books.41 The controversy surrounding this treatment cannot straightforwardly be described as constitutional yet expresses profound changes in social attitudes as well as providing a focal point for broader campaigns on women’s rights. Schumpeter nevertheless recognised that funding a state through taxation was only one of a number of possible ways of organising a society. The tax state had replaced older feudal42 systems and might in turn be replaced by socialism.43 Even within well-established constitutions, therefore, there is a possibility of profound shifts in the role of taxation and even its survival in a recognisable form.44 Schumpeter recognised that the financial distress of the Austro-Hungarian Empire in 1918 raised questions as to the continuing ability of the tax system to fund a functioning state, but claimed that the tax state was capable in principle of surmounting the challenges of the post-war period. Its demise would come later and for reasons of social change rather than a crisis in war finance: By and by private enterprise will lose its social meaning through the development of the economy and the consequence expansion of the sphere of social sympathy … Society is growing beyond private enterprise and the tax state, not because but in spite of the war.45

39 ibid, 105. 40 ibid, 112. 41 A Seely, ‘VAT on sanitary protection’, House of Commons Library Briefing Paper no 1128, 14 May 2018, available at https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN01128. 42 Schumpeter, above n 3, 102 ff. 43 ibid, 130; JA Schumpeter, Capitalism, Socialism and Democracy, 5th edn, R Swedburg (ed) (London, Routledge, 1994). 44 This might be, for example, because the organisation of financial resources within a socialist state is not helpfully described as ‘taxation’ at all. 45 Schumpeter, above n 3, 131.

State Building 11 What about the possibility that tax problems might be bound up with incremental shifts in the legal structure of a state, significant in their way but not involving a total replacement of one mode of social ordering (eg, the tax state) with another (eg, socialism)? In other words, in the period following the initial establishment of a state, does tax retain some continuing capacity to influence not only society at large – which Schumpeter admits – but also the constitutional law of a state? The briefest review of UK tax history would suggest that it does. Following the ‘People’s Budget’ of Chancellor Lloyd-George in 1909, a controversial set of provisions for the taxation of land value became the focal point for a much wider set of disagreements around the legislative power of the House of Lords.46 The refusal of the upper house to pass the Finance Bill in 1909 culminated in the passing of the Parliament Act 1911, which removed the power of the Lords to amend or delay ‘money bills’47 or to delay other legislation indefinitely.48 The point here is not to engage in claims that the Parliament Act 1911 was tax-driven, but that The Crisis of the Tax State provides little assistance in understanding the significance of tax to the constitutional evolution of established states. This is not especially surprising. Schumpeter’s core interest was not legal but sociological and, if anything, he saw legal theory as obstructive to a proper understanding of the evolution of society.49 For present purposes, though, it is not legal theory that causes confusion but rather Schumpeter’s generalisation that finances are the ‘serving tool’ of established states.50 There is obvious force in this observation but it does not explain why tax continues to feature in so many constitutional controversies, let alone what its detailed role and significance might be. We need to look further afield in the literature for more guidance.

B. Subsequent Literature An obvious place to start is the expanding field of fiscal sociology, which takes inspiration from Schumpeter as well as other early pioneers such as Rudolf Goldscheid.51 Martin, Mehrotra and Prasad emphasise that the terminology 46 Daunton, Trusting Leviathan, above n 23, ch 11. 47 Parliament Act 1911, s 1. 48 ibid, s 2. 49 Indeed, for Schumpeter, the existence of phenomena such as modern tax administration was a much more reliable indicator of the existence of a ‘state’ than the definitions of statehood offered by jurists. These often invited misleading comparisons between widely divergent social orderings, such as mediaeval and modern societies: see Schumpeter, above n 3, 132–35, 137–38. Curiously, the English approach, in which archaic notions of the ‘Crown’ impeded the development of coherent theories of state, might have been less vulnerable to Schumpeter’s criticisms than the German authors cited in the text: see further JWF Allison, The English Historical Constitution: Continuity, Change and European Effects (Cambridge, Cambridge University Press, 2007) ch 3; cf S Flogaitis, The Evolution of Law and the State in Europe: Seven Lessons (Oxford, Hart Publishing, 2014) ch 4. 50 See text at n 38. 51 J Backhaus, ‘Fiscal sociology: what for?’ (2002) 61(1) American Journal of Economics and Sociology 55.

12 Tax Law, State-building and the Constitution applies broadly to scholars who are interested in the role of taxation in social change, and in particular the idea that taxation might have a causal as well as a symptomatic relationship with society more generally.52 In their own words: We call this emerging field the new fiscal sociology. By using this name, we do not intend to claim the new field exclusively for academic sociology departments. The disciplinary affiliations of the contributors to this field – as of the contributors to this volume – span the fields of economics, political science, law, history, and public policy in addition to sociology. We chose the name fiscal sociology to honor the economist Joseph A. Schumpeter, who borrowed that term from his Austrian contemporary Rudolf Goldscheid (1917) to suggest a science that would transcend increasingly narrow disciplines and unite the study of economics with the study of history, politics, and society.53

These explicit ambitions to recast existing knowledge into a new discipline, which mirror similar ambitions in The Crisis of the Tax State,54 mean that it is sometimes difficult to distinguish what counts as fiscal sociology from what does not – if, indeed, this is important at all. The fiscal sociology literature is nevertheless helpful in emphasising three areas of study of particular relevance to state-building:55 • critical tax theory; • tax and development; and • tax history. Critical tax theory highlights how tax creates, reinforces and modifies discriminatory tendencies within society relating to factors such as gender, race, sexuality and poverty.56 This is fascinating work indeed, though sometimes peripheral to the constitution as understood in this book.57 More pertinent is the literature on development, much of which deals explicitly with questions of state-building (most noticeably a leading text entitled Taxation and State-Building in Developing Countries58). A particularly important insight from this scholarship is that there may be close connections between the capacity of states to raise revenues, the methods of bargaining with taxpayers, the style of government and the character of political and administrative institutions.59 The development literature is not confined to examining national institutions. There is significant debate about 52 Martin, Mehrotra and Prasad, above n 35, 2–3. 53 ibid, 2. 54 Schumpeter, above n 3, 101. 55 IW Martin and M Prasad, ‘Taxes and Fiscal Sociology’ (2014) 40 Annual Review of Sociology 331–45, 332. 56 See eg Infanti and Crawford, Critical Tax Theory, above n 12. 57 Refer to text at n 25. 58 D Bräutigam, O-H Fjeldstad and M Moore (eds), Taxation and State-Building in Developing Countries: Capacity and Consent (Cambridge, Cambridge University Press, 2009). 59 ibid.

State Building 13 whether the engagement of developing countries with the work of international organisations on tax matters helps to increase state capacity (eg, by improving institutions and reducing corruption60) or instead defends the interests of developed countries (eg by the tendency of double-tax treaties based on the OECD model to favour residence countries).61 For those more interested in the emergence of now-developed countries, there is a wealth of historical scholarship, at least some of which would happily be identified by its authors with ‘fiscal sociology’ or the study of the ‘tax state’.62 Scholars within this tradition have looked at the influence of war, social structure, culture, official self-aggrandisement of officials and various other factors on the development of tax systems. Conversely, attention has also been paid to the contribution of tax to path-dependencies in the development of democratic institutions and indeed to other types of political organisation, often with reference to the decisions made at ‘critical junctures’ in the history of a state.63 A substantial amount of this literature relates to the history of the UK and more will be said about this further below, but first it is worth making a few comments on the relative neglect of state-building considerations as they affect modern developed jurisdictions.

C. Modern Developed States It is understandable why research into the influence of taxation on the building of state capacity tends to be focussed on history and on developing countries. 60 See eg Fiscal Affairs Department, ‘Capacity development’, available at www.imf.org/external/np/ fad/news/fadbroch.pdf; OECD, Tax Administrations and Capacity Building (Paris, OECD Publishing, 2016). 61 See eg T Dagan, International Tax Policy: Between Competition and Cooperation (Cambridge, Cambridge University Press, 2017) ch 3; Y Brauner and M Stewart (eds), Tax, Law and Development (Cheltenham, Edward Elgar, 2013). 62 See eg B Yun-Casalilla, P O’Brien and F Comín (eds), The Rise of Fiscal States: A Global History, 1500–1914 (Cambridge, Cambridge University Press, 2012); L Seelkopf, M Bubek, E Eihmanis, J Ganderson, J Limberg, Y Mnaili, P Zuluaga and P Genschel, ‘The rise of modern taxation: a new comprehensive dataset of tax introductions worldwide’, Working Paper, available at www.democraticanxieties.eu/wordpress/wp-content/uploads/2018/06/Vigoni_May2018.pdf; S Steinmo (ed), The Leap of Faith: the Fiscal Foundations of Successful Government in Europe and America (Oxford, Oxford University Press, 2018); R Bonney (ed), The Rise of the Fiscal State in Europe c. 1200–1815 (Oxford, Oxford University Press, 1999); AK Mehrotra, Making the Modern American Fiscal State (Cambridge, Cambridge University Press, 2013); C Tilly, Coercion, Capital, and European States, AD 990–1992 (Cambridge MA, Blackwell, 1990); M Levi, Of Rule and Revenue (Berkeley and Los Angeles, University of California Press, 1988); M Daunton, Just Taxes: The Politics of Taxation in Britain, 1914–1979 (Cambridge, Cambridge University Press, 2002); Buggeln, Daunton and Nützenadel, above n 33; and the works cited in nn 21 and 23. 63 Helpful reviews of the literature are provided in D Bräutigam, ‘Introduction: taxation and statebuilding in developing countries’ in Bräutigam, Fjeldstad and Moore, above n 58; Y Xu and X Xu, ‘Taxation and state-building: the tax reform under the Nationalist Government in China, 1928–1949’ (2016) 48 Accounting, Organizations and Society 17.

14 Tax Law, State-building and the Constitution The relative weakness of institutions within many developing countries both increases the urgency of securing reliable revenues and the difficulties of performing basic tasks such as identifying taxable events, measuring value, collecting liabilities or enforcing against non-compliant taxpayers. It is for the same reason that state-building in developed countries is often associated with the historical processes by which we have arrived at our present advanced state of administrative architecture. Nevertheless, it is becoming increasingly appreciated that the status quo in the developed world ought not to be taken for granted.64 This is partly because of the increased awareness of the practice of ‘base erosion and profits shifting’ or ‘BEPS’ in which taxpayers make use of capital mobility to switch the location of their tax liabilities from high-tax to low-tax or no-tax jurisdictions.65 These experiences are belatedly educating governments in the developed world to the difficulties long faced by developing countries in extracting revenues from mobile taxpayers. The second reason for looking at state-building in modern advanced jurisdictions is that it cannot – and could not ever be – assumed that non-tax elements of the constitutional architecture will remain static for ever more.66 In the case of the UK, there is obvious constitutional volatility with respect to matters ranging from membership of the EU to Scottish independence, devolution, the status of Northern Ireland and the degree of protection to be given to human rights. These matters are not primarily concerned with tax, yet each involves significant decisions on how to rearrange tax rules to reflect the new constitutional architecture. It is possible, in turn, that these tax decisions will create certain path dependencies in subsequent constitutional evolution, leading to a dynamic interaction between big-picture constitutional aims and the tax arrangements put in place to implement them. This suggestion involves a degree of speculation but gains some support from the examples presented throughout this book. A further relevant development is the popularisation of the language of ‘tax governance’. This terminology is used in two distinct ways. The first stems from an appreciation that the tax system cannot be adequately described by reference simply to black-letter law, tax authorities which apply that law and taxpayers who are subject to it. For instance, attention must also be paid to other actors such as networks of tax professionals,67 as well as the various social and contextual factors influencing tax compliance.68 In this sense, therefore, ‘governance’ can be distinguished from the 64 This point is expanded significantly in ch 6 of this book. 65 Refer to discussion of the BEPS phenomenon, and the response of the OECD, in ch 5 of this book. 66 This point has been highlighted in particular by the changes to the nature of states wrought by economic globalisation: see eg Picciotto, above n 13, ch 3. 67 See eg S Picciotto, ‘Indeterminacy, complexity, technocracy and the reform of international corporate taxation’ (2015) 24(2) Social and Legal Studies 165–84; D de Cogan, ‘A changing role for the administrative law of taxation’ (2015) 24(2) Social and Legal Studies 251–70. 68 See eg B Peeters, H Gribnau and J Badisco (eds), Building Trust in Taxation (Cambridge, Intersentia, 2017).

The UK Constitution 15 study of the legislative, executive and judicial arms of the ‘government’.69 The second usage of ‘governance’, perhaps confusingly, focuses specifically on the activities of governments and takes inspiration from the efforts of international organisations to encourage best practices in tax administration. To a significant degree this second type of governance initiative reflects the difficulties, already mentioned, that developed and developing states alike are facing in adapting their tax systems to meet the challenges of economic globalisation. There are accordingly large and expanding literatures relating to particular topics such as the exchange of information between tax authorities, tax transparency and anti-money laundering controls, and, of course, measures to prevent base erosion and profits shifting.70 If anything, though, this wealth of literature serves to illustrate the fragmentation in our understanding of the role of tax in creating, maintaining and redefining state capacity in the developed world. There is a highly sophisticated understanding of particular topics in tax administration but a weaker sense of how they relate more generally to the trajectory of developed states, at least besides assertions that central government capacity is being ‘hollowed out’.71 This fragmentation is only more apparent as we move to the literature relating specifically to the UK constitution.

IV. The UK Constitution A. Historical Moments The most recognisable influence of taxation on the English, and later UK, constitution can be seen in a series of canonical constitutional moments that involved serious struggles over the conditions upon which taxes could be levied. Indeed, the mere mention of tax and the constitution is likely to bring to mind the Magna Carta of 1215,72 the Petition of Right of 1628 and the Case of Ship Money 69 It is sometimes claimed that we are witnessing a movement of power from state to non-state actors and hence from ‘government’ to ‘governance’: see generally discussion in D Levi-Faur, ‘From “Big Government” to “Big Governance”?’ in D Levi-Faur (ed), The Oxford Handbook of Governance (Oxford, Oxford University Press, 2012). This must not be accepted uncritically in the tax field, first because of the continued centrality of taxation to state capacity, which is emphasised throughout this book, and secondly because non-state actors such as the General Commissioners of Income Tax have long been of high importance within the UK tax system: see eg Stebbings, above n 23, ch 3; D de Cogan, ‘Law and administration in capital allowances doctrine: 1878 to 1950’ in J Tiley (ed), Studies in the History of Tax Law, vol 6 (Oxford, Hart Publishing, 2013). 70 See generally C HJI Panayi, ‘The Europeanization of Good Tax Governance’ (2018) Yearbook of European Law 1–54. 71 Refer to this volume, 135. There are some honourable exceptions to the often-simplistic treatment of tax in relation to the trajectory of developed states, particularly with regard to the role of financial globalisation and the emergence of transnational law: see Picciotto, above n 13. 72 See generally J Frecknall-Hughes, ‘John Lackland: A Fiscal Re-evaluation’ in J Tiley (ed), Studies in the History of Tax Law, vol 1 (Oxford, Hart Publishing, 2004); J Frecknall-Hughes, ‘Fiscal Grievances Underpinning the Magna Carta: Some First Thoughts’ in J Tiley (ed), Studies in the History of Tax Law, vol 4 (Oxford, Hart Publishing, 2010).

16 Tax Law, State-building and the Constitution of 1637,73 the Bill of Rights and the Glorious Revolution of 1688 and the events surrounding the Parliament Act 1911. Looking further away from the shores of the British Isles, we might also think of the Boston Tea Party of 1773 and even the Indian Rebellion or War of Independence of 1857. For a thorough overview of these events, the reader is referred to specialist works such as The Evolution of a Constitution by Elizabeth Wicks,74 Beyond Magna Carta by Andrew Blick,75 ‘John Tiley and the Thunder of History’ by Michael Littlewood76 and of course classic works such as The Sinews of Power by John Brewer,77 State Formation in Early Modern England by Michael Braddick,78 The Victorian Taxpayer and The Law by Chantal Stebbings79 and the twin volumes Trusting Leviathan and Just Taxes by Martin Daunton.80 What is important for present purposes is that there is sometimes a tendency to elide three aspects of these historical moments. The first is the particular historical context in which they took place. For better or worse, we no longer worry too much about the Pope’s attitude towards the appointment of Archbishops of Canterbury, the loss of territory in France,81 the development of broadside gun emplacements on ships82 or the Protestant succession,83 although controversy persists around land value taxes.84 These are all fascinating topics for scholarship but suggest some caution in drawing direct parallels between conditions in 1215, 1637, 1688 and 1911 and the modern world. The second aspect of these historical moments is the extent to which their outcome can be relied upon as legal precedent. Most of the Magna Carta has now been repealed,85 but the Bill of Rights 1688 remains in force and was famously cited by Walton J in the case of Vestey (no 2)86 in support of his decision that legislation ought not to be interpreted in a manner that afforded the Revenue a choice of treatment.87 The Provisional Collection of Taxes Act 1913 is still in force (as consolidated in the Provisional Collection of Taxes Act 1968) as is the Parliament Act 1911

73 Case of Ship-Money, above n 20. 74 Wicks, above n 21. 75 Blick, above n 21. 76 M Littlewood, ‘John Tiley and the Thunder of History’ in Harris and de Cogan, vol 9, above n 14, in which the phrase ‘Thunder of History’ is adopted from Schumpeter, above n 3. 77 Brewer, above n 21. 78 Braddick, State formation in Early Modern England, above n 21. 79 Stebbings, above n 23. 80 Daunton, Trusting Leviathan, above n 23; Daunton, Just Taxes, above n 62. 81 These were some of the issues leading up to the Magna Carta: see Blick, above n 21, 42. 82 This was one of the problems that precipitated the Ship Money dispute: see Braddick, ‘Case of Ship-Money’ above n 21, 29. 83 This was one of the key drivers of the Glorious Revolution: see Brewer, above n 21, 141. 84 Controversial land value taxes formed one of the triggers for the constitutional upheaval leading to the Parliament Act 1911: see text at n 46, above; cf Labour Party, Manifesto 2017: For the Many not the Few, available at https://labour.org.uk/wp-content/uploads/2017/10/labour-manifesto-2017.pdf, 86. 85 Blick, above n 21, 57. 86 Vestey v IRC (no 2) [1978] STC 567, 575. 87 See further discussion in Daly, above n 8, 172.

The UK Constitution 17 although its application is not always without complication.88 What is beyond doubt is that the monarch and her government are not permitted to impose taxes without the consent of Parliament in the manner prescribed by section 1 of the Parliament Act 1911. In other words, one of the main outcomes of the constitutional moments discussed in this section of the chapter has been to consolidate control of revenues in the House of Commons, at least as against the monarchy and House of Lords.89 The third aspect, and perhaps the most important of all, is the political and rhetorical value that is possessed by the Magna Carta in particular, and to a lesser extent the Case of Ship Money and the Bill of Rights. It is, therefore, no surprise to find Thomas Gibson Bowles, an accomplished political operator who successfully challenged the practice of collecting income tax in advance of its imposition by the annual Finance Act,90 describe himself as a modern John Hampden after the defendant in the Case of Ship Money.91 In doing so he was associating himself not with a particular set of technical tax arguments – which in any case failed to persuade the court in 1637 – but with a supposed political inheritance that emphasised individual freedom and limitations on royal power. Whether the lessons that Bowles adopted from John Hampden were an accurate reflection of the historical record is secondary, as is the point that different people can take different lessons from ‘constitutional moments’. This is a well-known characteristic of the Magna Carta, which lasted less than two months in its original form but was drawn upon in the constitutional conflicts of the seventeenth century, in the American Revolution and by various stripes of political actor before and since.92 Interestingly, as Blick points out, this capacity for later interpretation and reinterpretation seems to have been helped by the vagueness of certain provisions,93 which allowed subsequent political operators to project their own needs and preoccupations onto the older text. It is probably futile to expend too much energy criticising the use of old texts for modern and often quite partisan purposes, although it is also wise to be sceptical of the more dogmatic and unreflective claims that thirteenth and seventeenth century events dictate a single right answer to twenty-first century constitutional problems. 88 See, famously, R (Jackson) v Attorney General [2005] UKHL 56, [2006] 1 AC 262. 89 More complicated considerations arise with respect to tax devolution and European taxation, which are discussed further in chs 2 and 5 respectively. It is also curious, although largely beyond the scope of this book, that the judiciary, Parliament in general and the Commons in particular have not exercised a like degree of control over either welfare or the expenditure of tax revenues: see further J Snape and D de Cogan, ‘Introduction: on the Significance of Revenue Cases’ in Snape and de Cogan, above n 21; AA Olowofoyeku, ‘R v Secretary of State for Foreign and Commonwealth Affairs, ex parte World Development Movement (1994): Financial Prudence, Interfering Busybodies’ in Snape and de Cogan, above n 21. 90 Bowles v Bank of England, above n 22. Income tax was, and is, imposed annually so that it would lapse if not reimposed by Parliament in the Finance Act each year. 91 See M Daunton, ‘Thomas Gibson Bowles’, above n 23, 91. 92 See generally Blick, above n 21, 51–62. 93 ibid, 47. There is an interesting parallel here with the characterisation of the ‘landmark’ nature of cases in Snape and de Cogan, ‘Introduction’, above n 89, 10–15, as resources for future discussion rather than as simple authorities for points of law.

18 Tax Law, State-building and the Constitution

B. The Contemporary Constitution In contrast to the widespread willingness of historical, legal, political and other scholars to examine the historical role of tax in the English and UK constitution, there is a disappointing fragmentation in the literature relating to contemporary constitutional experiences. This is not to deny that some of the scholarship examining particular aspects of the modern constitution is extremely accomplished. A highlight is the attempt of scholars such as John McEldowney to ensure that the relevance of tax to constitutional questions is repeatedly highlighted both in the broad sense that states need funds to survive and the more precise sense that the manner in which public finances are controlled may have consequences for other aspects of government: Political and economic pressures for the reduction of the budget deficit continue to require major cuts in public expenditure. This has had simultaneous effects on the delivery of many public services across most sectors of the economy. The financial crisis and political influences dominate the technical rules of financial reporting and control, with significant constitutional ramifications …94

This resonates strongly with the message of the present book. The maintenance of reliable public finances and the manner in which this is achieved is a matter of highest importance not only in itself but for other questions of what the state does and how it is organised. Moving to the particular areas of law examined in later chapters of the present book, there is a substantial volume of literature dealing with tax devolution, fiscal federalism, the institutions of central government, human rights, taxpayer rights, the control of the executive, the consequences of globalisation for the state, the phenomenon of base erosion and profits shifting and the UK’s departure from the European Union.95 The literature on these topics can be highly technical in places, and is often directed towards immediate policy outcomes rather than academic exploration. Yet some of the best writing in this vein demonstrates a keen appreciation of the centrality of tax to the functioning of the state and to the relationships between state, individuals and other non-state actors, and the relevance of this context to the technical matters discussed.96

94 J McEldowney, ‘Public expenditure and the control of public finance’ in J Jowell, D Oliver and C O’Cinneide (eds), The Changing Constitution, 8th edn (Oxford, Oxford University Press, 2015). 95 The reader should refer to the relevant chapters for detailed citations. 96 One of the clearest examples of this style of writing is M Stewart, ‘The boundaries of charity and tax’ in M Harding, A O’Connell and M Stewart (eds), Not for Profit Law (Cambridge, Cambridge University Press, 2014), in which the author draws on different conceptions of the constitutional role of charities in order to contextualise competing views on the applicable tax treatments. Something very similar is achieved in K Chan, The Public-Private Nature of Charity Law (Oxford, Hart Publishing, 2016), whose presentation of charity as a public-private hybrid is echoed in the explanation of tax by Snape and de Cogan, ‘Introduction’, above n 89, 23–26.

The UK Constitution 19 Another aspect of the literature that shines a light on the constitutional role of tax in the modern UK is the increasing tendency to examine relatively recent events as objects of historical study. Martin Loughlin’s Legality and Locality97 is particularly valuable for present purposes in presenting the local tax controversies of the 1970s and 1980s – still recent but almost contemporary at the time of writing – within a broader context of the UK state and the changing position therein of local government. This in turn demonstrates one of the benefits of studying tax history, in that it provides perspective and allows us to imagine concrete yet different ways of organising state and society even if the events under consideration are within living memory.98

i. Institutional Focus A much more direct attempt to highlight the systemic constitutional role of tax is presented in Tony Prosser’s important book The Economic Constitution.99 Prosser’s approach is essentially to bridge the divide between constitutional lawyers and (non-legal) public finance scholars on the question of what a constitution is. He appreciates that there are deep disagreements within both traditions, but he is particularly influenced by the idea that a constitution is made up of a series of political decisions as to the basic structure of economic life.100 This structure, although extra-legal in origin, is nevertheless embodied in institutional form that may be both described and evaluated in terms very familiar to mainstream constitutional lawyers. With this in mind, Prosser proceeds in the remainder of the book to describe the institutions most closely relevant to the regulation of the economy, embracing not only the tax system but also a range of linked topics such as public borrowing, expenditure, financial regulation, industrial policy and procurement. Having done this, he evaluates them against ‘process values’ such as legitimacy, accountability, transparency, openness and reflexivity.101 This book makes an especially helpful contribution to the debate on two counts. First, it translates into familiar legal terms the insights long familiar to public finance scholars outside law and reflected in The Crisis of the Tax State:102 that the

97 M Loughlin, Legality and Locality (Oxford, Clarendon Press, 1996). 98 Recent examples of this type of work include Tuck, de Cogan and Snape, above n 14; Daly, above n 8; M Hearson, ‘The UK’s Tax Treaties with Developing Countries during the 1970s’ in Harris and de Cogan, vol 8, above n 8; Y Xu, ‘A Historical Account of Taxes on Goods and Services in the Transition to Post-Socialist China’ and A Mumford, ‘Reviving Capital Transfer Tax Scholarship’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 7 (Oxford, Hart Publishing, 2015); and, of course, many of the later and therefore more chronologically recent chapters in Snape and de Cogan, above n 21. 99 Prosser, above n 9. 100 See in particular the discussion of ‘ordoliberalism’: ibid, 8–9. 101 ibid, 2, 13, 19. 102 Schumpeter, above n 3.

20 Tax Law, State-building and the Constitution public finances have a constitutive role, or in other words that decisions on taxation, borrowing and spending can have wider structural repercussions for state and society. Secondly, it emphasises the interconnections between different aspects of public finance as part of the overall political and legal settlement that comprises an ‘economic constitution’. The study of questions of tax law in isolation from this wider context is respectable if it suits the particular objectives of the research in question, but Prosser shows that this isolation is not mandated by the supposed ‘exceptionalism of tax’103 or by its frequently very technical nature.104 Indeed, as Snape and I have pointed out elsewhere, the decision whether to treat tax and welfare as conceptually separate (on the grounds that the collection and distribution of public resources involve different considerations) or as two parts of a single problem (because they equally concern the definition of individual entitlements as against the state) often rests on deeper political and philosophical beliefs.105 A somewhat similar approach to Prosser is adopted by Alt, Preston and Sibieta in their wide-ranging contribution to the Mirrlees Review,106 though it is directed to a very different audience. This study responded to the failure of the Meade Review,107 the previous flagship report of the Institute of Fiscal Studies, to gain political traction despite its strong reputation for intellectual rigour: In order that the Mirrlees Review would give greater consideration to which reforms ‘might command a wide consensus of political approval’, we were charged with writing a chapter that explicitly analysed the political economy of taxation.108

These hopes of a wide consensus have again fallen short of the mark, but the exercise has provided us with a particularly clear and thorough review of the tax institutions in existence at the time of writing.109 Usefully, Alt, Preston and Sibieta look far beyond the most obvious institutions such as HMRC and HMT and examine a range of practices ranging in formality from Chancellor Gordon Brown’s fiscal rules110 to the UK’s experience with corporate lobbying.111 As with Prosser, the 103 See eg S Daly, ‘Tax exceptionalism: a UK perspective’ (2017) 3(1) Journal of Tax Administration 95. 104 As Picciotto has pointed out in powerful terms, it is not only possible for highly technical points of tax law to have wider social significance; the existence and extent of the technicality may itself be significant: see Picciotto, above n 67. 105 Snape and de Cogan, above n 21, 3–4. To provide an example of how this might play out in practice, whether one is shocked by the vulnerability of welfare claimants relative to taxpayers may depend on whether one believes that this difference in treatment is underpinned by conceptual differences between welfare and tax: see generally D Cook, Rich Law, Poor Law: Different Reponses to Tax and Supplementary Benefit Fraud (Milton Keynes, Open University Press, 1989). 106 J Alt, I Preston and L Sibieta, ‘The political economy of tax policy’ in Institute of Fiscal Studies, Dimensions of Tax Design: the Mirrlees Review (Oxford, Oxford University Press, 2010). 107 J Meade, The Structure and Reform of Direct Taxation: Report of a Committee chaired by Professor JE Meade for the Institute for Fiscal Studies (London, George, Allen & Unwin, 1978). 108 Alt, Preston and Sibieta, above n 106, 1208. 109 The date of publication was 2010, but the IFS website has records of drafts being presented as early as 2006: see www.ifs.org.uk/publications/3763 (accessed 14 January 2019). 110 Alt, Preston and Sibieta, above n 106, 1268. 111 ibid, 1245. Lobbying was itself formalised by the ‘new approach’: see HM Treasury and HM Revenue & Customs, Tax Policy Making: a New Approach (June 2010), available at https://webarchive. nationalarchives.gov.uk/20130102201052/http:/www.hm-treasury.gov.uk/d/junebudget_tax_policy_ making.pdf (accessed 14 January 2019).

The UK Constitution 21 authors do not only describe institutions but evaluate them, with particular regard to transparency and accountability.112 Taken together, Prosser’s book and Alt, Preston and Sibieta’s study provide heavyweight intellectual support for an approach to tax based on close examination and evaluation of institutions. The great strength of this approach is that it encourages us to examine the most fundamental elements of our system of making and enforcing taxes and to assess whether things ought to be done differently.113 The corresponding weakness may be a certain over-optimism on the prospects of deliberate institutional reform. In this sense they are redolent of Brennan and Buchanan’s argument that the term ‘constitution’ implies a distinction between the ‘rules of a game’ and ‘the choice among alternative strategies that a player might make in the course of a game’.114 In their view, the former are just as capable of being chosen as the latter, although the timescale of ‘constitutional choice … is necessarily more extensive than in any post-constitutional choice’.115 This emphasis on constitutional choice is potentially helpful to reformers, though not everyone would agree with the ‘small state’ assumptions that Brennan and Buchanan bring to the task. As a description of constitutional change in the UK tax system, though, the idea of mature reflection on the status quo and its performance against broadly agreed criteria seems peculiarly inapt. What we see instead is a mixture of serious constitutional crises and a more gradual process of reflecting underlying social, political and constitutional transformations within the tax system. So we have had unsuccessful attempts to constrain the behaviour of monarchs (eg, Magna Carta, Petition of Right); successful attempts to constrain the behaviour of monarchs (eg, Bill of Rights) and Lords (Parliament Act 1911); the creation of new methods of taxation during wartime (eg, income tax during the Napoleonic Wars and the taxation of corporate profits in their own right during World War I); the pressures for progressive taxation created by the extension of the electoral franchise and the widening of the tax net to include increasing sections of the middle and working classes (eg, section 17 of the Finance Act 1894 for death taxation and section 66 of the Finance (1909–10) Act 1910 for income taxation);116 the gradual erosion in the authority of the lay General Commissioners of Income Tax in favour of the Inland Revenue, owing to changing social roles and the increased complexity of tax law in 112 An interesting feature of the Mirrlees Review is the publication of multiple commentaries underneath each chapter of the first volume (Institute of Fiscal Studies, above n 106). The commentaries on Alt, Preston and Sibieta’s study are substantial pieces of work in their own right and are at points sharply critical of the authors, but broadly accept the premise of describing institutions and then evaluating them against predefined criteria: see Alt, Preston and Sibieta, above n 106, 1289 (P Riddell), 1295 (G Tabellini), 1304 (C Wales). 113 cf Brennan and Buchanan, who adopt contractual reasoning precisely to avoid the need to ‘specify a set of externally determined, or divinely revealed, criteria by which alternative tax systems may be judged’. Brennan and Buchanan, above n 32, 4. 114 ibid, 5; see also M Oakeshott, ‘The Rule of Law’, in M Oakeshott, On History and Other Essays (Indianapolis, Liberty Fund, 1999) 137. 115 Brennan and Buchanan, above n 32, 5. 116 Refer generally to Daunton, Trusting Leviathan, above n 23, including ch 8.

22 Tax Law, State-building and the Constitution the early twentieth century;117 the adoption of VAT as part of the process of joining the European Communities; and the more recent deepening both of Scottish tax powers and more general support for independence and/or further devolution. Even some structural tax reforms that at first sight appear deliberate turn out, on closer inspection, to have deeper roots (eg, the reflection of Thatcher-era public service reforms in the merger of the Inland Revenue and Customs & Excise to form HMRC in 2005).118 To conceptualise these developments as changes in the ‘rules of a game’, following Brennan and Buchanan, might bring a certain clarity and sense of perspective to our understanding of the tax system. They may be said to embody choices about how we order our constitution and tax system, even if they in fact occurred in a more haphazard fashion than is suggested by the word ‘choice’. Nevertheless, there is only a limited amount that a game analogy can tell us about how and why structural changes happened and what their wider constitutional consequences might be. This is recognised by Alt, Preston and Sibieta, who accompany their review of institutions with an interesting account of ‘policy drift’ and show how the policymaking environment helped to transform research and development allowances from a targeted incentive into a much broader regime, creating new interest groups in the process.119 Prosser’s study, by contrast, is relatively static, focussing more on the opportunities for his analysis to recommend change than on the dynamic processes that have shaped and continue to shape the status quo.120

ii. Political Constitution If the question of structural change poses challenges for approaches centred on describing and evaluating tax institutions, it is utterly central to John Snape’s important book The Political Economy of Corporation Tax.121 At the risk of oversimplifying a complex argument, the central move in Snape’s book is to place politics first and tax law second. Tax law in this light is the embodiment of successive attempts to encase political aims and ideologies into semi-permanent legal form, with each administration both adding to and reinterpreting the 117 Stebbings, above n 23, ch 3. 118 Tuck, de Cogan and Snape, above n 14; see similarly the discussion of self-assessment in constitutional terms in A Mumford, Taxing Culture: towards a theory of tax collection (Abingdon, Routledge, 2017). This is not to deny that many fundamental tax reforms are informed not only by immediate or gathering constitutional crises, but by a more deliberate process of assessing the defects in the status quo and the best way of addressing these. The most famous example in recent history is probably the introduction of the capital gains tax, which largely reflects the Memorandum of Dissent of N Kaldor, G Woodcock and H Bullock to the Final Report of the Royal Commission on the Taxation of Profits and Income (Cmd. 9474, 1955): see further D Collison, ‘The UK Capital Gains Tax – The Conception of the 1965 Act’ in Harris and de Cogan, vol 9, above n 14. 119 Alt, Preston and Sibieta, above n 106, 1245. 120 Prosser is explicit about his motivations and how they differ eg from those of Buchanan: see Prosser, above n 9, 10. 121 Snape, above n 11.

Normative Perspectives 23 inheritance bequeathed by previous administrations. This logic, which bears similarities to the approaches to constitutional law comprehended by the term ‘political constitutionalism’,122 in principle applies equally to legislation and judge-made law123 and equally to technicalities and fundamental features of the tax system. Ironically, Snape’s approach simultaneously denies any special status to the ‘rules of the game’ and provides an explanation of major changes in the tax system. Things change, as already related, because new rulers informed by new ideas create new rules and reinterpret old ones. This inverts at least two common assumptions relating to the status of constitutional moments in tax law. First, the significance of events such as Magna Carta, the Case of Ship Money, the Bill of Rights and the Parliament Act 1911 is not only to be determined by historical evidence – interesting and enlightening though that may be – but by the way that they have been interpreted and reinterpreted through the course of history.124 This leads to the second point, which is that at the centre of Snape’s account of taxation is not ‘rules of the game’ but rather the history of ideas, which informs our understanding of the system and defines the ground on which we argue about it. Snape’s insistence that tax should be regarded as ‘political jurisprudence’125 belies its common stereotype as a highly technical area of law. It also contrasts with the approach of many economists, lawyers and other policy advisers who seek to rationalise taxation and despair of the damage done by what they regard as political interference. Nevertheless, Snape’s position gains substantial support from the depiction of tax in The Crisis of the Tax State as central to the existence of a state, albeit for most purposes a ‘serving tool’ rather than ‘immediate cause’ of the activities of that state.126 The present book differs from The Political Economy of Corporation Tax in focussing on the interaction of tax problems with UK constitutional law, yet similar ideas are in play. If the idea of tax as crystallised politics works with a subject as technical as corporation tax, then all the more might it help us to understand the occasional irruptions of tax into constitutional law debates.

V. Normative Perspectives In The Economic Constitution, Prosser distinguishes carefully between the type of normative enquiry in which he considers himself to be engaged and a different 122 In the description of political constitutionalism by Elliott and Thomas, ‘the basic point is that the practices governing the exercise and distribution of government power are determined not by legal rules, but by a set of political understandings’: see Elliott and Thomas, above n 16, 38. 123 As Snape makes clearer still in John Snape, ‘WT Ramsay v Commissioners of Inland Revenue (1981): Ancient Values, Modern Problems’ in Snape and de Cogan, above n 21. 124 This, of course, leaves room for disagreement around the proper interpretation of the events in question. 125 Snape, above n 11, 220. 126 See text at nn 36–38 above.

24 Tax Law, State-building and the Constitution type of scholarship exemplified by James Buchanan amongst others. The normative concern of those authors: reflected principles of constitutional design on a priori grounds to protect liberty or reflect the rational choices of individuals … a deliberately designed set of principles to promote a particular value or set of social values in the process of economic management.127

That the appeal of ‘deliberate design’ is very widespread in tax scholarship and is not confined to those with conservative political leanings is illustrated starkly by the fact that one of the most important tax publications so far this century bears the title Tax by Design.128 The ambition noted at the outset of this report could hardly be expressed more clearly or forcefully: Tax by Design is both an imperative and a description of our approach in this review. Our aim is to set out the principles on which a 21st century tax system should be based and then to apply them in suggesting concrete policy recommendations to improve the UK tax system. To that end, we use insights from economic theory and empirical research to discuss the impact that the tax system has on people’s behaviour, and the resulting trade-offs that policymakers have to make between the various and often conflicting objectives that they might wish the tax system to achieve.

These are high ambitions indeed, yet they are convincingly fulfilled in the remainder of the volume, and in the longer and more discursive companion volume Dimensions of Tax Design.129 It is difficult, however, to sympathise unqualifiedly with the assertion that designed taxation in the sense comprehended by the Mirrlees Review is ‘an imperative’. The conscious design of major aspects of the UK tax system seems to be the exception rather than the rule and is not always a conspicuous success.130 The claim must be, therefore, that we ought to prefer designed tax systems to ones that are allowed to develop incrementally over time.131 This makes sense on the modified utilitarianism employed throughout the Mirrlees Review,132 but less so on Snape’s understanding of tax as political jurisprudence. If, for better or worse, tax policy is best described not merely as a way of 127 Prosser, above n 9, 10. Buchanan was particularly concerned to control the supposed tendency for the government as ‘Leviathan’ to maximise its own revenues: see Brennan and Buchanan, above n 32, 33–37. 128 Institute of Fiscal Studies, above no 15. 129 Institute of Fiscal Studies, above n 106. 130 As explained in the text at n 107, neither the Meade Report nor the Mirrlees Review have been implemented; nor was the Report of the Income Tax Codification Committee, Volume II, draft of an income tax bill (Cmd. 5132, 1935–36); refer also to n 118. In comparable jurisdictions, there was an attempt to enact the highly ambitious report of the Carter Commission in Canada (Report of the Royal Commission on Taxation (Ottawa, Queen’s Printer and Controller of Stationery, 1967) but without conspicuous success; the Henry Review in Australia rapidly became entangled in political difficulties: see Richard Vann, ‘Corporate tax reform in Australia: lucky escape for lucky country?’ [2013] BTR 59. 131 This is placed beyond doubt at Institute of Fiscal Studies, above no 15, 20. 132 This permits certain political considerations, in particular the desire for redistribution, to act as constraints on the full-blooded maximisation of ‘social welfare’. In turn, the social welfare function ‘depends on much more than measured income’ and takes into account considerations such as the ‘cost to people in working more hours’ and the fact that ‘[n]eeds vary and income may be more valuable to some than others.’ In sum, ‘[t]he maximization of this measure of “social welfare” stands a long way from the maximization of some crude measure of aggregate income.’ ibid, 36–39, 46–47.

Normative Perspectives 25 raising revenues and redistributing resources, but as a vital and extremely versatile instrument for governments seeking to translate their various promises and ideologies into practice, a stable tax system that faithfully replicates a conscious economic design is the last thing that we would expect to encounter. Even if such a system outlasted its introduction, it would be too tempting, too quickly, for the government to reinforce its next set of political ambitions by modifying the underlying rules.133 It is not my aim here to arbitrate between the different perspectives held by the Mirrlees Review authors and John Snape, but merely to observe that the principle of designed taxation is more controversial than might appear from a casual reading of Tax by Design. Nevertheless, this approach has a strong pedigree and is particularly prominent in relation to the subject-matter of chapter two of this book, the devolution of tax powers to Scotland, Wales, Northern Ireland and within England. The sub-discipline of fiscal-federalism examines, typically in the language of economic theory, how fiscal powers ought to be distributed between central governments and subordinate tiers of authority. As noted in chapter two, the literature in this tradition is notable for a high degree of refinement especially in its response to some of the more obvious pitfalls of tax design. For instance, there has been a distinct shift away from prescriptive statements of how federations ought to operate in favour of providing policymakers with a choice of various workable options.134 Despite the prominence of the Mirrlees Review and fiscal federalism, designed tax systems are not a feature of all normative perspectives on tax in the constitution. A famous dispute, discussed in more depth in chapter four, concerns the nature of taxpayer property rights and the degree of priority which they ought to be protected within the tax system. At one end of the spectrum, John Locke135 and Robert Nozick136 are adduced in support of the claim that property rights arise independently of the state and cannot legitimately be compromised by a government seeking to impose tax without the explicit consent of each taxpayer affected.137 At the other end of the spectrum is the view, supported with reference to the work of Liam Murphy and Robert Nagel,138 that property rights are meaningless without

133 Snape, moreover, frames his theory in terms of Machiavellian prudence, of governments constantly seeking to increase their capacity to shape and order a state: see Snape, above n 11, 28–31 and 12, drawing on the idea of capacity outlined in Martin Loughlin, The Idea of Public Law (Oxford, Oxford University Press, 2003). It is possible, but may not be worthwhile, to complain about governments behaving in this manner. 134 Refer to this volume, 59. This performs a similar role to the concept of constraints within the Mirrlees Review. 135 J Locke, Second Treatise of Government (Oxford, Oxford University Press, 2016) V.27. 136 R Nozick, Anarchy, State, and Utopia (Oxford, Blackwell, 1974) 151. 137 J Bird-Pollan, ‘Death, Taxes and Property (Rights): Nozick, Libertarianism, and the Estate Tax’ (2013) 66 Maine Law Review 1, 14, 16, who points out that Nozick himself appeared to take this extreme position. 138 L Murphy and R Nagel, The Myth of Ownership: Taxes and Justice (Oxford, Oxford University Press, 2002).

26 Tax Law, State-building and the Constitution reference to the state that simultaneously defines and protects them. This second view makes it more difficult, although not necessarily impossible, to argue that property rights ought to be protected against the state by virtue of which they exist in the first place. The lessons to be drawn from this dispute may be substantive (eg, whether a given type of tax, rate or treatment ought to be imposed) or procedural (eg, what type and degree of consent ought to be required for the enactment of tax legislation). Either way, what is interesting is that it is possible to deploy normative arguments from the Nozick–Murphy and Nagel debate without implying any conscious tax design in the mould of the Mirrlees Review, fiscal federalism or even the constitutional theory of Brennan and Buchanan. At this point it is useful to return to Prosser’s distinction between his exercise of measuring the ‘economic constitution’ against a series of values such as legitimacy, accountability, transparency, openness and reflexivity139 and the refashioning of tax according to ‘a deliberately designed set of principles’.140 This is a helpful distinction and underlines the point, obvious to public lawyers, that normative arguments might be used to advocate or resist structural changes in taxation without any particular end-state in mind. A particularly important example is the appeal to the ‘rule of law’. There is deep disagreement on the exact nature and requirements of the rule of law,141 yet it is undoubtedly capable of inspiring normative recommendations in taxation that go to the heart of the relationship between citizen and state. An interesting possibility is outlined by Edwin Simpson, who argues by analogy with ‘common law constitutionalism’142 that tax law is structured by a distinctive set of underlying principles, to which courts may pay regard in individual cases. For instance, he suggests that the courts might recognise ‘principles limiting the power of the state to tax before wealth (whether income or capital gain) has been received’.143 Whilst Simpson does not explicitly relate this suggestion to the rule of law, it bears close resemblance to the sixth of Lon Fuller’s widely accepted list of process values or ‘desiderata’, ‘that rules or orders be … possible of observance’.144 Simpson’s argument raises difficult questions about the respective roles of courts and Parliament in the tax field, but shows how values associated with the rule of law might be used to impose a degree of discipline in the tax field without necessarily implying radical reform. The ongoing activity of the courts in delineating when taxpayers can enforce the advice, guidance and practices of HMRC is an even more concrete illustration of the same point.145 139 Refer to text at n 101, above. 140 Refer to text at n 127, above. 141 See discussion in S Daly, Tax Authority Advice and The Public (Oxford, Hart Publishing, 2020) 42–43. 142 Refer to Elliott and Thomas, above n 16, 46–48. 143 E Simpson, ‘The Ramsay principle: a curious incident of judicial reticence?’ [2004] BTR 358, 370. 144 L Fuller, The Morality of Law, 2nd edn (New Haven, Yale University Press, 1969) 212. 145 S Daly, Tax Authority Advice and The Public (Oxford, Hart Publishing, 2020).

The Approach in this Book 27

VI. The Approach in this Book In outlining the remaining parts of this book, it is helpful to summarise from the varied discussions in this chapter a few tentative claims about the relationship between tax and constitutional law: 1. There is a significant overlap between the concerns of tax and constitutional lawyers. 2. The fast pace of constitutional change in the UK is having an influence on the development of our tax system. 3. Decisions taken in the tax field may have a reverse influence on constitutional evolution, consistently with the view that the state-building role of tax is not entirely submerged even in developed states. 4. The influence of tax on the constitution is likely to be highly context-specific, with tax making all the difference to some ongoing constitutional controversies and having very little to do with others. 5. By acknowledging tax as an important moving part within the contemporary constitution we might understand both tax and constitutional law a little better. In order to examine these claims in a more concrete setting, the next four chapters contain brief case studies on different aspects of the UK constitution. These have been deliberately selected for breadth of coverage, with subnational, national and supranational tax arrangements represented as well as the relationship between citizen and state. This necessarily sacrifices some of the depth of detail that is possible in more narrowly focussed studies of particular tax institutions or legal regimes. However, this returns us to another point previously made, which is that the weakness in the existing literature is not lack of coverage of particular issues but rather fragmentation. What is missing is some broader sense of whether tax matters to the constitution, whether the centrality of tax revenues and rules to the creation and survival of a state makes any difference to the contemporary evolution either of tax or of constitutional law. The argument of this book, as can be seen from the fourth claim listed above, is that it does make a difference but not always in the same way or to the same extent. The variety in the case studies, as we shall see, makes this contextual argument much easier to judge.146 Chapter two, then, provides the first case study with an examination of the devolution of tax powers to Scotland, Wales and Northern Ireland, and within 146 The scope of the case studies could have been drawn even more widely, to include areas outside the conventional scope of ‘constitutional law’ in which the resource implications of taxation nevertheless seem to be important. Potential candidates might have included the restitution of overpaid tax or the rules governing charitable status. These fields have been excluded not because they are irrelevant in principle to the points being made throughout the book but in order to keep the project within manageable bounds as well as to maintain focus on the relationship between tax and the constitution. Questions relating to public expenditure, welfare and other non-tax aspects of public finance have been excluded for the same reason. See also text at nn 30 and 96.

28 Tax Law, State-building and the Constitution England. Particular regard is paid to the interplay between centrifugal pressures (eg, repeated tax devolution and Welsh replication of some Scottish developments) and centripetal pressures (eg, maintenance of central government oversight and the overriding of the Sewel convention in the case of Miller (no 1).147 Chapter three examines the UK’s approach to tax reform and pre-legislative scrutiny, finding it to be risk-averse and highly deferential to central government. It is nevertheless instructive as a counterweight to the dynamism of the other case studies. Chapter four examines the question of how taxpayer interests are protected. It is argued that there is a fundamental absence of agreement on the normative grounds for protecting taxpayers, which has coincided with a gradual drift towards a more authoritarian mode of administration. Chapter five looks at the impact of developments in international and EU taxation on the domestic UK constitution. In most respects it illustrates the famous flexibility of our constitution in the face of changing conditions, but questions of taxation and trade have played an important role in the debates surrounding the status of the Irish border post-Brexit. Chapter six concludes by returning to the state-building literature and examining why so much of it seems to be of limited relevance to the UK in the twenty-first century. The structure of each case study is shaped by the same five basic claims. So, in order to draw out relevant material, each of chapters two to five begins with a brief review of the relevant constitutional law debates. This is followed by a more detailed review of relevant tax controversies, emphasising areas where constitutional change is significant for the tax system or where tax decisions might be exerting a reverse influence on constitutional evolution. Each case study ends with a set of provisional conclusions that are then used as material for the more general assessment of the constitutional role of tax in chapter six. One of the most fundamental challenges in this book is the variable weight of evidence that is available on different points. In relation to the five claims, it is straightforward to substantiate the first, that there is a significant overlap between the concerns of constitutional and tax lawyers. The second claim, on the relevance of constitutional change to taxation, is also easily established, subject of course to the context-specificity that comprises the fourth claim. The fifth claim is a matter of interpretation rather than proof one way or another. The real challenge arises in relation to the third claim, on the relevance of tax decisions to constitutional change. In principle this is capable of being supported with evidence, yet even with the benefit of historical hindsight it is a daunting and controversial matter to identify exactly what it was about a tax development (eg, the controversy over the People’s Budget of 1909) that helped to prompt and shape wider constitutional change (eg, the Parliament Act 1911 restrictions on the House of Lords). It is an order of magnitude more difficult to do the same in relation to ongoing events, the conclusion of which lies in the future, and much of the evidence relating to which is not even in the public domain.

147 R

(Miller) v Secretary of State for Exiting the European Union [2017] UKSC 5, [2017] 1 All ER 593.

The Approach in this Book 29 The difficulty in finding and interpreting evidence of the constitutional consequences of tax decisions indicates that caution is needed when drawing conclusions in relation to the third claim. It does not, however, justify withdrawing the claim altogether, or overlooking the possibility that there are modern counterparts to the intertwining of tax and constitutional problems in the People’s Budget crisis. Moreover, even though there is a scarcity of ‘silver bullet’ evidence that proves incontrovertibly the existence of causative links between tax developments and constitutional change, it is much easier to find indicative evidence of such links. A useful example of this is the decision of the House of Commons on 8 January 2019 to accept an amendment to the Finance Bill 2019 that restricted the power of HMT to deal with the tax consequences of a ‘no deal’ departure from the EU. This illustrates two important points. The first, evoking the Parliament Act 1911, is that tax disputes are sometimes used as a vehicle for wider constitutional complaints, and in return help to shape the character of those complaints.148 The second is that the proponents of the amendment decided to fix upon a relatively minor provision (entitled ‘Minor amendments in consequence of EU withdrawal’) so securing a symbolic victory rather than genuinely placing the public finances of the UK at further risk.149 The value of these observations about the Finance Bill 2019 amendment is that they raise the same types of questions as the ‘state building’ analysis earlier in this chapter. If wider controversies are being channelled into tax disputes, then why is this being done, does it have anything to do with the importance of revenues to the state or some other special feature of taxation, and what influence does it have on the subsequent direction of the underlying controversies? If MPs, courts or others are acting with conspicuous deference to the integrity of public revenues, then why are they doing so and does this suggest that tax has some kind of protected status? The evidential advantage here is that we might be able to identify relevant material for this project precisely by looking for instances in which tax disputes started life as broader controversies, or where legal doctrines or political activity seems surprisingly accommodative of the protection of revenues.150 These phenomena alone may still be insufficient to prove the continuing significance of taxation for 148 For further discussion of the tendency to channel questions of high politics through tax law, see D de Cogan, ‘CIR v National Federation of Self-Employed and Small Businesses (1981): All Grievances Converging on Tax Law’ in Snape and de Cogan, above n 21. 149 What is quite possible is that the proponents had in mind the well-publicised ‘shutdowns’ of the US government in which antagonists in political disputes have deliberately restricted public finances, leading to the non-payment of many government employees and the temporary closure of some services. The amendment of a relatively trivial provision would therefore serve as a symbolic threat that a US-style shutdown could subsequently be imposed on the UK government, with potentially devastating consequences. This was certainly the view presented in parts of the press: see eg K Ferguson, ‘MPs plan to mount a Donald Trump-style shutdown of the British Government as they ramp up their bid to stop a no deal Brexit’, Daily Mail, 6 January 2019, available at www.dailymail.co.uk/news/article-6561945/ MPs-plan-mount-Donald-Trump-style-shutdown-Government-stop-no-deal-Brexit.html. 150 More concretely, there may be instances in which widely-supported methods of rationalising the law are persistently disappointed in Parliament or in the courts, and where the public interest in the stability of revenues is a plausible explanation for this disappointment.

30 Tax Law, State-building and the Constitution the evolution of the state but might at least indicate fruitful areas for further study, perhaps including the collection of empirical evidence. This is consistent with the ambition of the book to develop rather than to ‘solve’ the study of UK constitutional tax law, as well as the acceptance throughout that the strength of evidence for the claimed interdependence of tax and constitutional law is likely to be highly context-sensitive.

VII. Conclusion This chapter has highlighted the role of tax in creating the conditions in which states have emerged and can continue to prosper. Whilst this is familiar to tax historians and development scholars, it tends to be submerged in discussions of developed states and its absence from Avi-Yonah’s description of the functions of taxation is telling. It is argued that tax considerations continue to inform deeper questions of constitutional change even in developed states, and that these processes are likely to be unusually visible in the context of the rapid transformation of the UK at the time of writing. The book is confined to UK material but places no weight on the exceptionality of the ‘unwritten constitution’ and instead adopts a functional definition of constitutional law that highlights rather than obscures the possibilities for future comparative study.

2 Tax Devolution This chapter examines the devolution of taxes from the UK to Scotland, Wales, Northern Ireland and to English regions and localities. How has constitutional change been reflected in the tax system, particularly since the decisive shift towards a multi-layered system of government in 1998? Have any decisions in the tax field had a wider influence on the evolution and interpretation of the constitution? In order to address these questions, the discussion follows the structure indicated in chapter one. The next section of this chapter, accordingly, provides a brief review of the relevant constitutional law debates. This is followed by a more detailed discussion of developments in devolved taxation. The chapter concludes with some general observations on the significance of tax to devolution processes. There are two possibilities worth outlining at the outset, as they relate to material throughout the chapter. The first is that the UK is moving from an ad hoc, context-specific system of devolution to something that looks much more like a model of fiscal federalism. The strongest evidence for this is the degree of convergence that is taking place between the Scottish and Welsh tax systems, though there is also some relevant material from England and Northern Ireland. The second possibility is that the state-building role of tax, outlined in chapter one, might also be playing an important role in the emergence of Scotland as a distinctive entity within the UK and perhaps ultimately as an independent state. This in turn raises difficult and not exclusively legal questions on the extent to which capacity-building within devolved administrations is still capable of being reversed or overridden by central government.

I. Devolution in the UK Constitution A. Historical Overview At first sight, the approach of the UK towards the territorial constitution seems both clear and uncompromising. As Dicey put it in his seminal text An Introduction to the Study of the Law of the Constitution: The principle of Parliamentary Sovereignty means … that Parliament … has, under the English constitution, the right to make any law whatever; and, further, that no person

32 Tax Devolution or body is recognised by the law of England as having a right to override or set aside the legislation of Parliament.1

Although the word ‘English’ is used, there could be no doubt in the year of first publication, 1885, that the law generated by Parliament was expected to be implemented not only in Wales but also in Scotland, Ireland and indeed further-flung parts of the British Empire.2 There might be other institutions with decisionmaking power, but as a matter of English law they were obliged to conform with statutes of the Westminster Parliament. On closer inspection, things were a bit more complicated. For a start, as is well documented, Dicey’s model must be supplemented with an appreciation of the practical limits on Parliamentary authority. As a matter of theory, English law might have recognised Parliamentary sovereignty as extending to territories beyond the military control of the British Empire, but this was of no practical consequence unless a realistic means of enforcement could be found.3 The legislative output of the Westminster Parliament was not authoritative in Scottish law before 17074 or Irish law before 1800.5 To say the very least, it has not achieved unqualified political acceptance in either sub-jurisdiction ever since. The nineteenth century saw the establishment of Parliaments in various British territories. Taking Canada as an example, the British North America Act 1867 established and conferred powers on the Parliament of Canada, although this did not prevent the UK Parliament from subsequently changing the terms of its authority.6 This position evolved further with the provision in the Statute of Westminster 1931 that subsequent Acts of the UK Parliament would not extend to Canada ‘unless it is expressly declared in that Act that that Dominion has requested, and consented to, the enactment thereof ’,7 and with the recognition by the Canada Act 1982 that no subsequent UK legislation ‘shall extend to Canada as part of its law’.8

1 A Venn Dicey, Introduction to the study of the law of the constitution, 8th edn (Indianapolis, Liberty Fund, 1982) 3–4. 2 On this point, see ibid, 49 ff. 3 The same point applies to the retreat from Empire. See Lord Sankey LC in British Coal Corporation v The King [1935] AC 500, 520, referring to the possibility of the Westminster Parliament revoking the legislative independence conferred on Canada by the Statute of Westminster 1931: ‘It is doubtless true that the power of the Imperial Parliament to pass on its own initiative any legislation it thought fit extending to Canada remains in theory unimpaired: indeed the Imperial Parliament could, as a matter of abstract law, repeal or disregard section 4 of the Statute. But that is theory and has no relation to realities.’ See further HWR Wade, ‘The basis of legal sovereignty’ [1955] CLJ 172. 4 Acts of Union 1707. 5 Acts of Union 1800. 6 In fact, as Dicey observes, the British North America Act 1867 was rather atypical in not allowing the Parliament of Canada to amend the constitution except in very modest respects. However, he points out that the difference from Australia and New Zealand was ‘more apparent than real; the Imperial Parliament would no doubt give effect to any change dearly desired by the inhabitants of the Canadian Dominion’. See Dicey, above n 1, 53. 7 Statute of Westminster 1931, s 4. 8 Canada Act 1982, s 2.

Devolution in the UK Constitution 33 Another complication with Diceyan sovereignty is that, though all governing institutions were bound in English law by Acts of Parliament, not all of them derived their own authority from Parliament. The most obvious example is the prerogative power of the monarch, which is still exercised by the government in certain residual areas of policy that have not yet been regulated by statute.9 The authority of English local councils was similarly of ancient origin and not dependent on delegation from Parliament, although as with the prerogative it has been restricted and transformed by many years of statutory intervention.10 It is not surprising that the extent and nature of these statutory restrictions on the prerogative has given rise to serious disputes, most recently on the question of whether the government enjoyed prerogative power to withdraw from the EU treaties without prior Parliamentary authorisation.11 We must therefore avoid the oversimplified view that recent devolution exercises within the UK mark an absolute break from a tranquil and unbroken history of a unified state. The nature and territorial extent of Parliamentary authority has always been contested in various ways, Dicey notwithstanding. All the same, the decision of the incoming Blair government in 1997 to hold referenda on the creation of devolved institutions of government in Scotland, Wales and Northern Ireland marks a watershed moment in recent UK constitutional history. The result of each referendum was positive, leading to the establishment of the Scottish Parliament, the Scottish Executive,12 the National Assembly for Wales13 and the Northern Ireland Assembly. Before this point, it made no sense to speak of the UK as a federal jurisdiction. Ever since, the question of the UK’s federalism has been a reasonable one to ask, although no doubt capable of differing interpretations.

B. Current Tensions The authority of these institutions is demarcated clearly in the Scotland Act 1998, Government of Wales Act 1998, Northern Ireland Act 1998 and in subsequent legislation. Unfortunately, it is still not always easy to predict how the frameworks established by these statutes are likely to interact with the principle of Parliamentary sovereignty. The problem arises because the UK Parliament’s ‘right to make any law whatever’ as observed by Dicey logically includes the right to legislate on devolved matters in defiance of the wishes of the institutions and voters of Scotland, Wales and Northern Ireland. This is important because it implies a very different type of settlement from those federal systems in which sub-national institutions enjoy legal guarantees of formal consultation in areas of 9 Including, pertinently for the present book, the government’s treaty-making power: see further this volume, 131 ff. 10 See generally M Loughlin, Legality and Locality (Oxford, Clarendon Press, 1996) ch 1. 11 R (Miller) v Secretary of State for Exiting the European Union [2017] UKSC 5, [2017] 1 All ER 593. 12 Now known as the Scottish Government. 13 The executive arm of which is now separate and known as the Welsh Government.

34 Tax Devolution shared competence, or even of outright non-interference by the centre in defined areas of law and regulation. These questions came to a head in the case of Miller (no 1)14 which concerned the conditions in which the UK government could notify its intention to withdraw from the EU under Article 50 of the Treaty on European Union. The government wished to issue the notification without recourse to Parliament under the treatymaking powers of the royal prerogative. The applicant, who succeeded in both the Divisional Court and the Supreme Court, argued that Parliamentary approval was necessary before the notification could be sent, mainly on the basis that it would interfere with domestic legal rights of UK citizens. One of the questions that arose was whether the UK Parliament would be legally competent to provide such approval without the consent of the devolved legislatures, given that the UK’s withdrawal from the EU would undoubtedly have consequences for devolved areas of law and policy. This was a live issue because the First Minister of Scotland, Nicola Sturgeon MSP, had indicated her unwillingness to provide consent for the triggering of Article 50. The issue was sharpened because the question seemed to be covered by the Sewel Convention, first articulated by Lord Sewel in the House of Lords in 1998 but subsequently incorporated in the inter-governmental agreements between the UK and devolved governments.15 It provides as follows: The United Kingdom Parliament retains authority to legislate on any issue, whether devolved or not. It is ultimately for Parliament to decide what use to make of that power. However, the UK Government will proceed in accordance with the convention that the UK Parliament would not normally legislate with regard to devolved matters except with the agreement of the devolved legislature.16

The convention is reflected in section 28(8) of the Scotland Act 1998, inserted in 2016: … it is recognised that the Parliament of the United Kingdom will not normally legislate with regard to devolved matters without the consent of the Scottish Parliament.

The judges of the Supreme Court in Miller (no 1) were sympathetic to the purpose of the convention but denied that it imposed judicially enforceable obligations on the UK Parliament to secure the consent of the devolved legislatures.17 14 Miller (no 1), above n 11. 15 The first of which was the Memorandum of Understanding and supplementary agreements between the United Kingdom Government, Scottish Ministers and the Cabinet of the National Assembly for Wales (Cm 4444, 1998–99). The Sewel convention is unusual in that it was established and articulated in response to a perceived need, rather than being gleaned by commentators from long-standing practices and understandings: refer eg to M Elliott and R Thomas, Public Law, 3rd edn (Oxford, Oxford University Press, 2017) 43–44. 16 MoU, above n 15, 5 [13]. 17 Miller (no 1), above n 11, [136]–[151] (majority). Lord Reed (diss.) also thought the Sewel convention incapable of judicial enforcement, although this was obiter given his view that Parliamentary approval was not necessary for an Article 50 notification: [178], [242]. Lord Hughes (diss.) agreed with the majority on the Sewel point: [282].

Devolution in the UK Constitution 35 This, predictably, provoked some dismay amongst some commentators who recognised it as evidence of the vulnerability of devolution to the ‘aggressive exercise’ of Dicey’s ‘notably English doctrine of Parliamentary sovereignty.’18 Another constitutional debate that has relevant parallels in tax law is the position of England within the devolution process. The structural problem is as follows. Scottish, Welsh and (intermittently) Northern Irish voters have the opportunity to choose representatives in their own national legislatures as well as to choose MPs of the Westminster Parliament. These national legislatures in turn have a significant degree of autonomy over defined areas of policy, subject of course to the risk of override by Parliamentary sovereignty. In contrast, there is no national legislature for England, and English affairs remain within the jurisdiction of the UK Parliament even when they correspond to areas of policy devolved to Scotland and elsewhere. One consequence is that the votes of Scottish, Welsh and Northern Irish MPs might be decisive for matters of policy affecting only England, whereas English MPs could not ordinarily expect to vote on equivalent matters affecting only Scotland, Wales and/or Northern Ireland. The distinctiveness of the party-political structure in the devolved nations increases the likelihood of their MPs overturning the majority preference of English MPs. This problem, known as the ‘English question’ or the ‘West Lothian question’,19 has been alleviated by a Parliamentary mechanism known as English Votes for English Laws (EVEL) by which legislation affecting only England cannot pass into law unless it commands a majority of MPs representing English constituencies.20 This procedure seems to have outperformed some pessimistic prognostications,21 but obviously falls far short of a distinctive English legislature. On this point, there are serious obstacles to setting up such a legislature. For a start, it would represent approximately 84 per cent of the UK’s population, which would in turn raise questions about the function and competences of the UK’s state-level institutions as well as their ability to resist domination by England.22 18 See R Rawlings, Brexit and the territorial constitution: devolution, reregulation and intergovernmental relations (London, Constitution Society, 2017) 24, 28–29, 36. The corresponding prohibition on the Scottish Parliament from legislating inconsistently with the Scotland Acts was confirmed in The UK Withdrawal from the European Union (Legal Continuity) (Scotland) Bill – A Reference by the Attorney General and the Advocate General for Scotland [2018] UKSC 64, in which, however, the Supreme Court did not accept that inconsistencies existed on all of the points alleged by the UK Government. 19 A phrase coined by Enoch Powell in 1977 in response to the repeated raising of the question by Tam Dalyell, the MP for West Lothian: see P Bowers, ‘The West Lothian Question’, House of Commons Library Standard Note, SN/PC/2586, 18 January 2012, available at https://researchbriefings.files. parliament.uk/documents/SN02586/SN02586.pdf, 4. 20 R Kelly, ‘English votes for English laws’, House of Commons Briefing Paper no. 7339, 20 June 2017, available at https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7339. 21 See D Gover and M Kenny, ‘One year of EVEL: evaluating “English votes for English laws” in the House of Commons’, The Constitution Unit, 28 November 2016, available at https:// constitution-unit.com/2016/11/28/one-year-of-evel-evaluating-english-votes-for-english-laws-in-thehouse-of-commons/. 22 See further J Gallagher, The Problem of EVEL: English Votes and the British Constitution (Gwilym Gibbon Centre for Public Policy Working Paper, Nuffield College Oxford, July 2015).

36 Tax Devolution In any case, recent governments have expended effort not on proposals for an English Parliament but instead on the development of English regional institutions. These can be traced to the attempts of Tony Blair’s government to introduce directly elected mayors of local authorities as one of a range of replacements for the conventional ‘committee system’ of local government.23 These initiatives suffered from limited popular support24 and would be of little relevance to a discussion of regionalism except for two further considerations. The first is the establishment of the Greater London Authority (GLA) in 2000 under a separate legislative scheme. This institution has evolved into by far the most powerful devolved authority in England, with powers over various important areas of policy including planning, transport, housing, economic development, policing and crime, and fire services.25 The second is the decision from 2014 onwards to shift emphasis towards ‘devolution deals’ between the government and, typically, groups of local authorities centred on large cities and known as ‘combined authorities’.26 The devolution of powers under these deals27 can loosely be described as weaker versions of the London arrangements.28 One attraction of these regional groupings, often headed by elected mayors known as ‘metro mayors’, is that they are much closer in population size to Scotland, Wales and Northern Ireland. This suggests that regional devolution might be used as one method of approximating a more conventional federal system with approximately equal sub-national units, though as things stand it is difficult to imagine the Cambridgeshire and Peterborough Combined Authority ever wielding equivalent legal powers or cultural significance to the Scottish institutions.29 It is worth mentioning one further, well-known, point of contention in relation to the devolution settlements. This is the question of which institutions would gain the power to legislate, after the UK’s departure from the EU, on matters previously 23 See M Sandford, ‘Directly-elected mayors’, House of Commons Briefing Paper no 05000, 7 May 2019, available at https://researchbriefings.files.parliament.uk/documents/SN05000/SN05000.pdf, 4. 24 ibid, 13–14. 25 See Mark Sandford, ‘The Greater London Authority’, House of Commons Briefing Paper no 05817, 7 June 2018, available at https://researchbriefings.parliament.uk/ResearchBriefing/ Summary/SN05817, 2. 26 See M Sandford, ‘Devolution to local government in England’, House of Commons Briefing Paper no 07029, 15 May 2019, available at https://researchbriefings.parliament.uk/ResearchBriefing/ Summary/SN07029. Not all of the existing deals are with urban areas, however: see eg Cornwall Council, ‘Devolution to Cornwall’, available at www.cornwall.gov.uk/community-and-living/ communities-and-devolution/devolution/devolution-to-cornwall/. 27 There is insufficient space here to review the applicable legislation in depth, but for more information refer to Sandford, ‘The Greater London Authority’, above n 25, 4–9; Sandford, ‘Devolution to local government in England’, above n 26, 7. 28 Sandford describes the devolution ‘menu’ as including the Adult Education Budget, business support, investment funds, fiscal powers, integrated transport systems and planning and land use, as well as the Work Programme and the schemes for ‘“harder to help” welfare claimants’ by which it has been replaced. Optional extras include housing and health powers. See Sandford, ‘Devolution to local government in England’, above n 26, 2, 11. 29 There is a short but interesting review of some of these matters in Elliott and Thomas, above n 15, 320–25, in which the precarity of devolution to combined authorities is rightly emphasised.

Devolution in the UK Constitution 37 out of bounds under EU law. The view from the Scottish and Welsh institutions was that the ‘return’ of competences should simply follow the devolution settlements. In other words, devolved legislatures would be able to enact statutes relating to devolved areas of policy whether or not this would previously have been permitted under EU law. The opposing argument was that competences would in the first instance return to the UK institutions before subsequently being distributed to the devolved nations in a controlled manner.30 Ultimately a compromise was reached whereby powers were returned by default to the devolved legislatures but with a mechanism for the UK government to issue Regulations to modify this position subject to certain safeguards.31 A subsequent attempt by the Scottish Parliament to ensure that this mechanism could only be used with the consent of the Scottish Ministers was held by the Supreme Court to be ultra vires the Scotland Acts.32

C. Localism The devolved institutions of 1998 were built upon earlier experiences of selfgovernment, most recently the Parliament of Northern Ireland33 but also the pre-1707 Parliament of Scotland. In a strict legal sense, though, they represent something new, tracing their origins if not necessarily all aspects of their evolving constitutional significance to the 1998 devolution legislation. In contrast, the origins of English local government are complex, ancient and irreducible to a single moment of creation by either Parliament or monarch.34 Needless to say, local government has long experienced interference from the centre, especially since the expansion of the Parliamentary franchise by the Reform Act 1832 drew fresh attention to archaisms and unfairness in England’s municipal institutions.35 The most controversial tendency in recent years has been for central government to insist that local authorities implement national policies whilst simultaneously reducing funding. A sceptical observer might conclude that this provides a technique for governments to take credit for fiscal probity whilst escaping the blame for expenditure cuts.36

30 See Public Administration and Constitutional Affairs Committee, Devolution and Exiting the EU: reconciling differences and building strong relationships (HC 2017–19, 1485) 15–23. 31 European Union (Withdrawal) Act 2018, s 12. 32 AG Reference, above n 18. 33 This was a home rule institution established by the Government of Ireland Act 1920. It was controversial for its permanent Unionist majority, sometimes described as ‘a Protestant parliament for a Protestant people’: see D McKittrick, ‘Echoes from history as Trimble meets Adams’, The Independent, 12 September 1998. The Parliament was suspended in March 1972 and was followed by a period of ‘direct rule’ from Westminster that lasted until the opening of the Northern Ireland Assembly in 1998. 34 See generally Loughlin, above n 10, Ch 1. 35 ibid, 31 ff. 36 See, for background, D Innes and G Tatlow, ‘Delivering fiscal squeeze by cutting local government spending’ (2015) 36(3) Fiscal Studies 303–25.

38 Tax Devolution As a general observation, the recent initiatives to decentralise power to local authorities fall so far short of the Scottish, Welsh and Northern Irish schemes as to make the shared use of the word ‘devolution’ highly misleading. Nevertheless, there is now some legal substance behind the rhetoric of localisation. The Localism Act 2011 substantially expanded the legal powers of local authorities, making specific provision on a number of topics such as business rates, infrastructure, planning, housing and governance procedures. As detailed above, further powers may be secured by signing ‘devolution deals’, usually as part of a regional combined authority. These developments are interesting but only partially reverse the radical centralisation carried out by Mrs Thatcher’s government and to a lesser degree over the previous decades.37 In any case, as we shall see in the tax context, there remains substantial opportunity for substantial central interference even in supposedly localised areas of policy.

II. Tax Devolution The question of tax devolution is extremely technical at points. It is not possible to provide more than a sense of this complexity in the short summary below, but it is worth emphasising that technical detail and constitutional principle are more closely interrelated than initially appears. For instance, the mechanisms that allow HM Treasury to maintain control over some aspects of devolved taxation might signify that devolution as a whole is shallower than it seems, or instead that tax involves special considerations that have little wider significance. Tax devolution might be helping to establish the revenue streams and hands-on experience of fiscal administration that might someday support Scotland or even Wales as independent states. Alternatively, we might point to a gradual move from a series of ad hoc tax arrangements to something more closely resembling economists’ models of fiscal federalism. These wider themes are of the essence in evaluating the constitutional claims made in chapter one and are considered again at the end of this chapter. Meanwhile, it is useful to outline some of the main developments in tax devolution over recent years, beginning with Scotland and then moving in turn to Wales, Northern Ireland and England.

A. Scotland The tax system has until recently been remarkably ‘unitary’, applying uniformly to Scotland and other parts of the UK. This contrasts with Scots private law, which is distinctive and often closer in character to the civil law systems of continental

37 See

Loughlin, Legality and Locality, above n 10, ch 2.

Tax Devolution 39 Europe than to English law.38 For the avoidance of doubt, the unitary nature of tax does not automatically imply English dominance. Some of the most significant early cases after the introduction of an income tax appeal in 1874 were heard in Scottish courts at first instance and concerned Scottish taxpayers such as Addie and Sons,39 the Coltness Iron Company40 and the Caledonian Railway Company.41 Even in more recent times, there have been occasions in which Scotland has had an outsized influence on UK taxation, most notably in its unhappy experience as a testbed for Mrs Thatcher’s Community Charge (also known as the Poll Tax).42 Nevertheless, the only distinctively Scottish tax before the election of the Blair government in 1997 was non-domestic rates, which is a charge imposed annually on the rental value of non-domestic properties. This was not a devolved tax in a modern sense but was governed by a separate legislative framework from its English and Welsh equivalent,43 in part reflecting differences in the underlying property law. This all changed in 1997, when the Blair government returned to the question of Scottish devolution for the first time since the referendum of 1979, in which ‘Yes’ campaigners had secured a majority of the vote but an insufficient percentage of the Scottish population.44 A referendum was held on 11 September 1997 in which voters were asked to answer two questions: first, whether there should be a Scottish Parliament, and secondly, whether this Parliament should have tax-varying powers. Both questions were answered affirmatively by the Scottish electorate. The Scotland Act 1998 was passed in order to give effect to the outcome of the referendum, and the Scottish Parliament and Scottish Executive (now ‘Government’) were inaugurated in the following year. The tax powers conferred on the Scottish Parliament were, nevertheless, extremely limited, consisting solely of a power to vary the basic rate of income tax (on non-savings and non-dividend income) within 3 per cent of the standard UK rate.45 More significant was the following paragraph in a list of matters specifically reserved to the UK institutions.46 A1. Fiscal, economic and monetary policy Fiscal, economic and monetary policy, including … taxes and excise duties, government borrowing and lending, control over United Kingdom public expenditure … 38 The continuing independence of substantial parts of Scots law was ensured by the Acts of Union in 1707: see E Wicks, The Evolution of a Constitution: Eight Key Moments in British Constitutional History (Oxford, Hart Publishing, 2006) 42–45. 39 Re Addie (1875) 1 TC 1. 40 Coltness Iron Company v Black (1881) 6 App Cas 315. 41 Caledonian Railway v Banks (1880) 1 TC 487. 42 See generally Loughlin, above n 10, 394–97. 43 See Scottish Government, Non-domestic rates: legislation (Factsheet, May 2018), available at www. gov.scot/publications/non-domestic-rates-legislation/. 44 I Swanson, ‘Scotland’s 1979 devolution plans: 40 years on from the “Yes” vote that wasn’t’, Edinburgh Evening News, 1 March 2019, available at www.edinburghnews.scotsman.com/education/ scotland-s-1979-devolution-plans-40-years-on-from-the-yes-vote-that-wasn-t-1-4881420. 45 Scotland Act 1998, Part IV. 46 Scotland Act 1998, Schedule 5, Part II, Para 3.

40 Tax Devolution Exception Local taxes to fund local authority expenditure (for example, council tax and non-domestic rates).

The exception here recognises that property rates and council tax have never been national UK taxes in an uncontroversial sense, despite the deep centralisation processes of the late 1980s and early 1990s.47 The message from the Scotland Act, though, is clear and familiar. The raising of public finances is central to the functioning of the state and control was not to be lightly relinquished to the Scottish institutions in this first round of devolution. After a period of relative stability in which even the limited rate-varying powers were not used,48 the Scottish Parliament in 2007 established the Commission on Scottish Devolution – known informally as the Calman Commission – to review the experience of the previous decade and to consider whether any further changes were needed to the devolution settlement.49 One of the topics considered by the Commission was the devolution of further tax powers. The most weighty argument in favour of further devolution was the mismatch between the Scottish Parliament’s extensive responsibility for spending decisions and its almost total lack of accountability for the raising of the necessary revenues.50 The most weighty argument in favour of the status quo was the damage that could be done to the UK’s ‘comparatively administratively efficient’ system of tax administration.51 It was considered that the best way of balancing these considerations would be to increase the control of the Scottish Parliament over income tax rates, to devolve certain minor taxes such as Stamp Duty Land Tax, Aggregates Levy, Landfill Tax and Air Passenger Duty, and to permit the Scottish Parliament to introduce new taxes with the agreement of the UK Parliament.52 Significantly for

47 Loughlin, above n 10, 93 ff. 48 At the risk of speculating, the initial neglect of these powers may have reflected the relatively close alignment between the Labour-Liberal Democrat coalition in Scotland and the Labour government in Westminster between 1999 and 2007, as well as the difficulty of the policy and technical issues to which rate divergence gives rise (eg, the sensitivity of location decisions to rate differences and the need for separate administration of Scottish and rUK income). In any case, the election of SNP minority and subsequently majority administrations since 2007 has evidently altered the balance of considerations in favour of divergence. 49 The Calman Commission was established on the initiative of the opposition Labour, Conservative and Liberal Democrat parties shortly after the change of government to a minority SNP administration and in response to the SNP’s plans for an independence referendum: see H Holden, The Commission on Scottish Devolution – the Calman Commission, House of Commons Library Standard Note, SN/PC/04744, 4 June 2010, available at https://researchbriefings.parliament.uk/ResearchBriefing/ Summary/SN04744, 6. 50 Commission on Scottish Devolution, Serving Scotland Better: Scotland and the United Kingdom in the 21st Century, Final Report, 15 June 2009, available at www.qmul.ac.uk/law/maccormick/media/ maccormick/timeline/15_06_09_calman.pdf, 6–7; see also the discussion of ‘coherence’ between taxing, spending and other types of regional autonomy in OECD and Korea Institute of Public Finance, Fiscal Federalism 2016: Making Decentralisation Work (Paris, OECD Publishing, 2016) ch 2. 51 Commission on Scottish Devolution, above n 50, 7. 52 ibid, 10.

Tax Devolution 41 present purposes, the Commission reported the advice of ‘a panel of distinguished experts’ that: Their most important advice to us was that the system of funding should support the constitutional relationship that we want to see between Scotland and the rest of the UK.53

The point was made even more explicitly in the earlier interim report, which is worth citing at length: Devolution, as it currently exists, would in principle allow for a fundamentally different welfare state in Scotland or in England, at least in relation to health or education. But there may be a case for a broadly common social citizenship across the UK. If so, does a common understanding of what that involves need to be more clearly articulated? Alternatively how much scope and support is there for significantly greater divergence in welfare services, with the implications that raises for how they are financed? Would it be better if the Scottish Parliament had unfettered freedom to decide those aspects of domestic policy which constitute the welfare state, including not just health and education but other aspects of social welfare, including social security. It would be a decision for MSPs what kind of social provision was appropriate. It would follow that this aspect of public spending would very likely have to be supported by taxes raised.54

The connections between expenditure, taxation and the broader question of how Scotland fits into the UK constitution could hardly be clearer. In any event the Scotland Act 2012 implemented the Calman Committee’s recommendations on Stamp Duty Land Tax and Landfill Tax,55 as well as most of its recommendations on income tax.56 The next milestone in tax devolution was the establishment of the Smith Commission in 2014 following the narrow rejection of Scottish independence in the referendum of the same year, and in fulfilment of promises made by the main Unionist parties during the referendum campaign.57 The recommendations of

53 ibid, 6. 54 Commission on Scottish Devolution, The Future of Scottish Devolution within the Union: A First Report, 2 December 2008, available at http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/02_12_08_calman. pdf, 36. 55 In more technical terms, the Scotland Act 2012 provided HMT with the power to disapply Stamp Duty Land Tax and Landfill Tax in Scotland; created a new exception to the fiscal powers reserved to the UK, namely ‘Devolved taxes, including their collection and management’; and clarified that taxes ‘on transactions involving interests in land’ and ‘on disposals to landfill’ would qualify as ‘devolved taxes’ as soon as the HMT power of disapplication had been exercised: see Scotland Act 2012, ss 23, 28, 29, 30, 31, Sch 3. The old UK taxes continued in force in the meantime but were replaced in 2015 by the bringing into force of the Land and Buildings Transaction Tax (Scotland) Act 2013 and the Landfill Tax (Scotland) Act 2014. 56 Antony Seely, ‘Devolution of tax powers to the Scottish Parliament: the Scotland Act 2012’, House of Commons Standard Note SN5984, 23 January 2015, available at https://researchbriefings.parliament. uk/ResearchBriefing/Summary/SN05984, 6. 57 Report of the Smith Commission for further devolution of powers to the Scottish Parliament, 27 November 2014, available at https://webarchive.nationalarchives.gov.uk/20151202171029/http:// www.smith-commission.scot/wp-content/uploads/2014/11/The_Smith_Commission_Report-1.pdf.

42 Tax Devolution the Smith Commission included further widening of the power of the Scottish Parliament to set rates of income tax, and importantly the power to change the income thresholds at which these rates are applied.58 Other recommendations included the assignment of an amount equivalent to a 10 per cent rate of VAT to the Scottish Government and the full devolution of Air Passenger Duty (APD) and Aggregates Levy.59 These recommendations were implemented by Part 2 of the Scotland Act 2016, although for a combination of technical and political reasons the power to replace the Aggregates Levy has not yet been exercised, the Air Departure Tax (Scotland) Act 2017 has not yet been brought into force60 and the assignment of VAT revenues has not yet been agreed.61 This is broadly where things stand at the time of writing.62 Perhaps the most significant milestone is not the full devolution of minor taxes, but rather the decision by the Scottish institutions to end the long convergence between the Scottish and rUK63 income tax structure and to develop a distinctively Scottish system of rates and thresholds.64 Bearing in mind that the Scottish Rate of Income Tax is still confined to non-savings, non-dividend income, this has left Scotland with a slightly more progressive and slightly more complicated system than England, though of course there is room for further divergence in the future. Alongside this series of reforms to the substantive tax law of Scotland, there have been important changes to the administrative structure. This aspect of devolution started slowly. The only administrative responsibility transferred to the Scottish institutions by the Scotland Act 1998 was the task of coordinating local taxation, to the extent that this had previously fallen to the UK Government.65 58 ibid, 23. 59 ibid, 24. 60 Revenue Scotland, Air Departure Tax, available at www.revenue.scot/air-departure-tax. Note that the main outstanding issues relate to how the principle of the Highlands and Islands exemption from Air Passenger Duty might be reflected in the new tax and in a way that is consistent with EU state aid rules. 61 Fraser of Allander Institute, ‘VAT assignment: paused for now, but will it be pulled for good?’, 14 May 2019, available at https://fraserofallander.org/scottish-economy/fiscal-policy/vat-assignmentpaused-for-now-but-will-it-be-pulled-for-good/. 62 It is worth adding that the UK government has power under the Scotland Act 1998, s 80B to add new taxes to the description of ‘devolved taxes’. This power has recently been exercised in the Scotland Act 1998 (Specification of Devolved Tax) (Wild Fisheries) Order 2018, although at the time of writing the Scottish institutions have not yet introduced a tax on wild fisheries. 63 A convenient term for ‘rest of the UK’. 64 The Scottish Rate Resolution of 2017 provided for a slightly lower income threshold for liability to 40% higher rate income tax than rUK, but the real break came in 2018 when a wholly new structure was implemented that includes rates of 19%, 20%, 21%, 41% and 46%. See further Scottish G overnment, Scottish Government Explanatory note for the draft Scottish Rate Resolution, 20 February 2018, available at www.gov.scot/publications/scottish-income-tax-2018-2019/. Useful comparisons with rUK may be found at HM Revenue & Customs, Rates and thresholds for employers: 2017 to 2018 (Guidance, February 2017), available at www.gov.uk/guidance/rates-and-thresholds-for-employers-2017-to-2018; HM Revenue & Customs, Rates and thresholds for employers: 2018 to 2019 (Guidance, January 2018), available at www.gov.uk/guidance/rates-and-thresholds-for-employers-2018-to-2019. 65 This is the effect of excepting local taxation from the reservation of tax matters to the UK in the Scotland Act 1998: see text at n 46. An example of the competences of the Scottish Government under this heading is the power to set the tax rate, or ‘poundage’, for non-domestic rates: see eg Non-Domestic Rate (Scotland) Order 2019; Local Government (Scotland) Act 1975, s 7B.

Tax Devolution 43 Things changed with the creation of devolved taxes by the Scotland Act 2012, which also specified that ‘[t]he collection and management of a devolved tax is a specified function of the Scottish Ministers’.66 The significance of this new administrative power is diminished by the fact that the term ‘devolved tax’ only embraces the minor taxes discussed above,67 and in particular does not include either income tax or VAT. Nevertheless, it did generate a need for new administrative capacity within the Scottish Government. This need was supplied by the creation of Revenue Scotland, first in 2012 as an ‘administrative unit’ of the Scottish Government68 and subsequently on a statutory basis under the Revenue Scotland and Tax Powers (Scotland) Act 2014. The same Act created Scottish Tax Tribunals with jurisdiction over the devolved taxes69 as well as a Scottish General Anti-Avoidance Rule, also applicable to devolved taxes, that was explicitly designed to be ‘wider’ and ‘more rigorous’ than its UK equivalent.70 All other taxes, including Income Tax and VAT, continue to be administered by HMRC with appeals going to the UK tax tribunals. There are a few more points to note in this brief overview of Scottish taxation. In spite of successive rounds of devolution, Scotland remains fiscally dependent on the UK. According to the Scottish Budget, only 40 per cent of Scottish Government spending is funded by taxes collected in Scotland.71 This is partly financed by a high budget deficit, which according to David Phillips meant that an extra £1,885 per person was borrowed in 2017/18 compared to the UK as a whole.72 Phillips further observed that ‘[u]nder current fiscal arrangements, it is the UK government and UK taxpayers that have responsibility for dealing with the vast majority of these higher borrowing levels’.73 Scotland also benefits from the allocation of UK-wide revenues under a Treasury practice known as the Barnett formula, dating from 1978 and named after the Chief Secretary to the Treasury of the time, Joel Barnett.74 This formula operates by subjecting the previous year’s allocation to the Scottish Government to an adjustment based on incremental changes to UK

66 Scotland Act 2012, s 23(3)(a). 67 Refer generally to Scotland Act 1998, Part 4A. 68 See Revenue Scotland, First Scottish taxes in 300 years, 1 April 2015, available at www.revenue.scot/ news/news/first-scottish-taxes-300-years. 69 See Revenue Scotland and Tax Powers (Scotland) Act 2014, Part IV, though note subsequent repeal of this legislation and reorganisation of the tribunals system: see Scottish Courts and Tribunals Service, Forthcoming changes to the Scottish Tax Tribunals, 6 February 2017, available at www.scotcourts.gov.uk/about-the-scottish-court-service/scs-news/2017/02/06/forthcomingchanges-to-the-scottish-tax-tribunals. 70 Scottish Government, Revenue Scotland and Tax Powers Bill: Policy Memorandum, 12 December 2013, available at www.parliament.scot/S4_Bills/Revenue%20Scotland%20and%20Tax%20Powers%20Bill/ b43s4-introd-pm.pdf [61]. 71 See Scottish Government, Scottish Budget: 2019–20, SG/2018/251, available at www.gov.scot/ publications/scottish-budget-2019-20/, 27: ‘Tax revenues raised in Scotland fund around 40 per cent of Scottish Government expenditure’. 72 D Phillips, ‘Observation, GERS shows that Scotland’s fiscal position continues to be weak but tells us much more as well’, IFS, 22 August 2018, available at www.ifs.org.uk/publications/13287. 73 ibid. 74 Commission on Scottish Devolution, above n 50, 72.

44 Tax Devolution spending and the Scottish proportion of the UK population.75 It values stability over need and is relatively generous to devolved governments, underlying the point just made about substantive fiscal dependence. The immediate relevance to tax devolution is that the Barnett formula is adjusted to take account of tax revenues foregone by the UK revenue authorities on account of devolution. This makes a serious difference to the level of the grant, with the unadjusted grant of £32,138.9m being reduced to £20,235.4m in 2019/20.76 As the difference comprises revenues that depend on devolved decision-making,77 the effect is to transfer an element of risk and reward to the Scottish Government: a risk that the revenues may be lower than expected and a reward if they exceed expectations.78 It is worth drawing out one more feature of Scottish devolved taxation before moving onto the position in Wales. This is the reliance on cooperation between the Scottish and UK Governments in order for the system to operate smoothly. In the absence of a written constitution delineating the powers and duties of the respective administrations, these must be found in the Scotland Acts as supplemented by the ‘Fiscal Framework’ that was agreed by the two governments in order to give effect to the outcome of the Smith Commission.79 As might be expected, the focus of this document is not so much on the substantive tax issues that are already governed by legislation. Instead, it covers matters such as the devolution adjustments to the Barnett formula, the sharing of administrative costs, the expectations on Scotland relating to borrowing, the scrutiny of fiscal arrangements and the ongoing cooperation of the two governments through the Joint Exchequer Committee. The Fiscal Framework sits alongside of a series of Memoranda of Understanding or ‘MOUs’ that similarly set out mutual expectations in various more detailed areas of fiscal policy.80 A curious and potentially important feature of the Fiscal Framework is its attempt to embed certain principles of devolved taxation that were articulated in the report of the Smith Commission.81 These include ‘economic responsibility’, or 75 ibid, Annexe 4 provides a worked example. 76 HM Treasury, Block Grant Transparency: December 2018 publication, December 2018, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 767101/Block_Grant_Transparency_2018_PDF_1.pdf, 8. These figures include also small adjustments for welfare devolution. 77 Refer to ibid, 6–7 for more detail. 78 The potential for revenue volatility to influence the style of government in Scotland is discussed in a number of interesting news articles eg D Fraser, ‘Holyrood tax: the devil’s in the data’, BBC News, 1 June 2019, available at www.bbc.co.uk/news/uk-scotland-scotland-business-48484264; Editorial, ‘Scotland’s budget is a taste of independence: the SNP will need to cut spending or raise taxes to fill a hole’, Financial Times, 10 June 2019. 79 HM Government and The Scottish Government, The agreement between the Scottish Government and the United Kingdom Government on the Scottish Government’s fiscal framework, available at www.gov.scot/publications/agreement-between-scottish-government-united-kingdom-governmentscottish-governments-fiscal/. 80 See eg ibid, Annex C Part 6; Scottish Government and HM Revenue & Customs, Memorandum of Understanding on the Scottish Income Tax Powers, 1 December 2016, available at www.parliament.scot/ S5_Finance/General%20Documents/2016.12.12_SG_HMRC_MoU__on_Income_Tax_Powers.pdf. 81 Smith Commission, above n 57, [95].

Tax Devolution 45 the idea that policy decisions of the Scottish institutions that influence revenues or expenditure ought to be reflected in full in the Scottish budget, instead of the risks and rewards of such decisions being shared between the Scottish and UK finances. There is also the principle of ‘no-detriment’, which requires that neither the Scottish nor UK budget should suffer a detriment either from the initial decision to devolve tax or spending powers, or from subsequent policy decisions taken by the other party. The idea of no-detriment has attracted trenchant criticism as setting unworkable restrictions on the policy freedom of central and devolved governments,82 although the Fiscal Framework confirms that there are limits to what will be regarded as a detriment.83 It is tempting to ask whether these principles have any special constitutional status, perhaps akin to the enforceable principles of equality that exist in certain other jurisdictions. In the light of the treatment of the Sewel convention in Miller (no 1),84 it seems inconceivable that a court would agree to enforce the principles of ‘economic responsibility’ or ‘no detriment’. On this point, the status of ‘constitutional convention’ also seems inappropriate for the Fiscal Framework principles, even in the weak sense of norms that are recognised by courts as binding political actors without being legally enforceable.85 They command a lesser degree of consensus than is usual for constitutional conventions and are supported neither by a clear line of historical precedent (understandable in view of their recent origin) nor by the statutory recognition enjoyed by the Sewel convention.86 This said, the Fiscal Framework and associated MoUs do offer a useful sense of how the UK and Scottish Governments envisage the concurrent exercise of tax powers, and will provide a starting point if the decision is ever taken to develop devolution into a more formal system of fiscal federalism.

B. Wales Welsh tax devolution engages many of the same considerations as Scottish devolution, except that it is less advanced in terms of separation from the UK. Wales has been united with England for much longer than either Scotland or Northern Ireland. This is reflected generally in the common underlying legal system, usually known as English law, and specifically in the total integration of Welsh and English tax law before 1998. Unlike Scotland and Northern Ireland even non-domestic rates were governed by the same legislation as England.

82 The views of Professor David Bell have attracted particularly wide attention: see eg ‘Scotland Bill: No detriment principle “is unworkable”’, BBC News, 21 January 2016, available at www.bbc.co.uk/news/ uk-scotland-scotland-politics-35364890. 83 See especially Fiscal Framework, above n 79, [48]. 84 Refer to text at n 11, above. 85 Refer to Elliott and Thomas, above n 15, 58–62. 86 See text at n 16.

46 Tax Devolution The processes of devolution began in 1997, with a referendum held on 18 September 1997 on the creation of a new legislative body. At this point, the similarities with Scotland stopped, at least for a while. The referendum did not contain any provision for tax devolution and unlike Scotland was passed by an extremely narrow margin. The Government of Wales Act 1998 gave effect to the outcome of the referendum but was different in character from the Scotland Act 1998. It established the legislative body known as the Welsh Assembly but did not create a separate executive institution along the lines of the Scottish Executive. It also implemented a ‘conferred powers’ model, which meant that the Assembly only enjoyed the powers specifically enumerated in the enabling legislation. This contrasted with the ‘reserved powers’ model applicable to Scotland, whereby the Scottish institutions enjoyed plenary legislative and executive competence except in those areas specifically reserved to the UK. In tax terms, this meant that not much changed after the 1997, because the Government of Wales Act 1998 had not conferred any tax powers on the Welsh Assembly. What the 1998 Act did provide for was the conferral of additional powers by statutory instrument, and in the following year the National Assembly for Wales (Transfer of Functions) Order 1999 transferred to the Assembly the executive powers of central government in respect of the local taxes.87 The Government of Wales Act 2006 formally separated the Welsh Government from the Assembly,88 but also contained provisions conferring on the latter the power to legislate in the field of local government finance.89 The activation of these provisions was conditional on confirmation in a referendum,90 which was carried out with a positive outcome in 2011. The exercise of these powers in order fully to devolve non-domestic rates, and to negotiate the necessary adjustments to the Barnett formula,91 took until April 2015. The other taxes continued to be governed by UK law, but the question of tax devolution was considered further by two bodies. The first was the Holtham Commission, established in pursuance of the 2007 coalition agreement between the Labour Party and Plaid Cymru in the Welsh Assembly. The second was the Silk Commission, established in pursuance of the 2010 coalition agreement between the Conservative Party and the Liberal Democrats in the UK Parliament. An interesting characteristic of both reports is that they were able to rely, not only on foreign examples of fiscal federalism but on the experience in Scotland and in particular on the recommendations of the Calman Commission.92 Accordingly, in spite of 87 National Assembly for Wales (Transfer of Functions) Order 1999, art 2 and Sch 1 (see references to the transfer of functions under the Local Government Finance Acts). 88 Government of Wales Act 2006, Part 2. 89 ibid, s 108 and Sch 7, Part 1, para 12. 90 ibid, ss 103, 105. 91 Along the same lines as the Scottish adjustments; see text at n 74, above. 92 See eg Independent Commission on Funding & Finance for Wales, Final report: Fairness and accountability: a new funding settlement for Wales, July 2010, available at https://gov.wales/sites/default/ files/publications/2018-10/fairness-and-accountability.pdf, 12; Commission on Devolution in Wales,

Tax Devolution 47 contextual differences between Scotland and Wales, and differences in emphasis between Holtham and Silk, some of the themes explored in the reports are very familiar. The pre-existing funding regime involved a much greater devolved control of spending than of revenue-raising, impairing the accountability of the devolved institutions.93 The answer was to devolve additional tax powers, including power to vary the rates of income tax,94 a power to introduce new taxes and full devolution of stamp duty land tax. The Silk Commission also followed Scotland in recommending the devolution of landfill tax, aggregates levy and air passenger duty; the earlier and more experimental Holtham report also urged consideration of full or partial devolution of corporation tax and capital gains tax on property and land.95 It was recognised by both bodies that the Barnett formula would need to be adjusted in order to reflect the devolved powers, and in such a way that transferred to the Welsh institutions the risk and reward of fluctuations in the devolved revenues; in other words equivalent to the principle of economic responsibility articulated in the Smith Commission report.96 The Silk Commission’s first report, which contained its recommendations on fiscal matters, was published in November 2012. The Wales Act 2014 gave effect to many of its recommendations, but in line with the Scotland Acts 2012 and 2016, the changes were not immediately effective.97 Instead, the 2014 Act amended the Government of Wales Act 2006 so as to confer powers on the Welsh Assembly to legislate for replacements to stamp duty land tax and landfill tax, to create new devolved taxes and to vary the rates of income tax.98 The income tax provisions were made subject to confirmation in a referendum, as recommended by the Silk Commission.99 The landfill tax was accordingly repealed by the Welsh Assembly and replaced with the Landfill Disposals Tax, with the new tax effective from April 2018.100 The stamp duty land tax was similarly replaced by the Assembly in the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017, with the new tax also effective from April 2018. As the title of this Act suggests, it also introduced a new General Anti-Avoidance Rule applicable to Welsh devolved taxes. It should not surprise the reader at this point that the preparatory materials refer continually to the experience in Scotland and in particular confirm that the

Empowerment and Responsibility: Financial Powers to Strengthen Wales, November 2012, available at https://webarchive.nationalarchives.gov.uk/20140605075525/http://commissionondevolutioninwales. independent.gov.uk/files/2013/01/English-WEB-main-report1.pdf, 40–43. 93 See Independent Commission, ibid, [2.20–2.21], in which the Calman Commission is cited, and Commission on Devolution in Wales, ibid, 5. 94 See Independent Commission, ibid, ch 6 and Commission on Devolution in Wales, ibid, [5.5], especially [5.5.57–5.5.66] in which the differences between Welsh and Scottish plans are enumerated. 95 Citation. 96 Smith Commission, above n 57, [95]. 97 Refer to n 55, above. 98 Wales Act 2014, Part 2. 99 Wales Act 2014, ss 12–14, Sch 1; Commission on Devolution in Wales, above n 92, [8.2]. 100 Landfill Disposals Tax (Wales) Act 2017.

48 Tax Devolution intention was to follow the wider and more robust approach of the Scottish GAAR as opposed to the UK GAAR. The story of the income tax is more involved. No referendum has been held, and indeed the referendum requirement was removed in the Wales Act 2017.101 This was not welcomed universally and was regarded in some quarters as a topdown imposition by Chancellor George Osborne.102 In any case, HM Treasury activated the rate-varying powers by Order in 2018, effective from the tax year 2019–20.103 The wider context of the Wales Act 2017 was that it converted the whole basis of Welsh devolution from the original ‘conferred powers’ model to a Scottish-style ‘reserved powers’ model.104 In reflection of this change, the newly-inserted Schedule 7A to the Government of Wales Act 2006 provided for the following powers to be reserved to the UK:105 A1. Fiscal, economic and monetary policy Fiscal, economic and monetary policy, including … taxes and excise duties, government borrowing and lending, control over United Kingdom public expenditure … Exceptions Devolved taxes, including their collection and management. Local taxes to fund local authority expenditure (for example, council tax and nondomestic rates).

It can be seen quickly that this matches the structure in Schedule 5 to the Scotland Act 1998, except that by 2017 it had become necessary to make specific reference to the devolved taxes. This underlines a deeper point, that the ongoing divergence between the devolved nations and the central UK institutions has been accompanied by a certain convergence at least between Scotland and Wales. Northern Ireland, as always, is a bit different and is discussed shortly below. If the outlines of a more standardised system of devolved authority are becoming clearer in the substance of Scottish and Welsh taxation, the same is true of tax administration. The Welsh Revenue Authority was put on a statutory footing by the Tax Collection and Management (Wales) Act 2016 and assumed the functions of HM Revenue & Customs in relation to the fully devolved taxes from April 2018. At the time of writing, these consist only of the Landfill Disposals Tax and the Land Transaction Tax. Obvious candidates for future devolution include the Air Passenger Duty, Aggregates Levy and the various ideas that have been canvassed for new taxes including a Tourism Levy, a Sugar Tax, a Water Tax, a Takeaway Packaging Tax and, last but not least, a Land Value Tax to supersede Council Tax 101 Wales Act 2017, s 17. 102 It seems particularly some Welsh Conservatives: see D Williamson, ‘Tory MPs accuse Osborne of disrespecting Wales by pushing through tax powers without a referendum’, Wales Online, 20 January 2016, available at www.walesonline.co.uk/news/politics/tory-mps-accuse-osbornedisrespecting-10761706. 103 Wales Act 2014 (Commencement No 2) Order 2018. 104 Refer to text between nn 86 and 87. 105 Government of Wales Act 2006, Sch 7A, Part 2, para 15.

Tax Devolution 49 and non-domestic rates.106 There is as yet no separate Welsh system of tax tribunals, and so appeals from decisions of the Welsh Revenue Agency are made to the First-tier Tribunal (Tax) of the UK.107 As in Scotland, there is a Fiscal Framework that sets out the respective expectations of the Welsh and UK governments in relation to devolved taxation,108 along with more specific MoUs.109 Significantly, the Fiscal Framework does not contain any reference to the principle of no-detriment, although it does seem to have some rhetorical value in Welsh politics.110 The principles articulated by the Welsh Government are instead rather conventional, comprising widely accepted desiderata for a good tax system such as clarity, stability and simplicity rather than the more mechanical and conceivably enforceable rules recommended by the Calman Commission.111

C. Northern Ireland The experience of devolution in Northern Ireland differs from that in Scotland and Wales in a number of respects. It is much older, with the Parliament of Northern Ireland being established in 1921 in partial implementation of the plans to institute ‘Home Rule’ across Ireland.112 This Parliament, commonly known as ‘Stormont’ in reference to its location in East Belfast, was suspended by the UK Government in 1972 in response to sectarian and political tensions within Northern Ireland. This led to a long period of direct rule from Westminster,113 which, aside from a short-lived attempt to establish a power-sharing administration in 1974, lasted until 1998. Throughout this period there was a dedicated Northern Irish Civil

106 See generally Bevan Foundation, Tax for Good: Devolved taxes for a better Wales: Final report, June 2016, available at www.bevanfoundation.org/publications/tax-good-new-taxes-better-wales/. 107 HM Government, ‘Appeal to the tax tribunal’, available at www.gov.uk/tax-tribunal. 108 HM Government and Welsh Government, The agreement between the Welsh Government and the United Kingdom Government on the Welsh Government’s fiscal framework, December 2016, available at www.gov.uk/government/publications/the-agreement-between-the-welsh-government-and-theunited-kingdom-government-on-the-welsh-governments-fiscal-framework. 109 eg HM Revenue & Customs and Welsh Government, Memorandum of Understanding between HM Revenue and Customs (HMRC) and Welsh Government for the implementation of the Welsh Rate of Income Tax, April 2018, available at https://gov.wales/welsh-rate-income-tax-memorandum-understanding. 110 D Williamson and M Shipton, ‘Why Wales could lose hundreds of millions if income tax powers are devolved’, Wales Online, 25 February 2016, available at www.walesonline.co.uk/news/wales-news/ wales-could-lose-hundreds-millions-10939540. For a useful discussion of some of the difficulties of the Scottish no-detriment principle, see E Gareth Pool, G Ifan and R Wyn Jones, Income Tax & Wales: the Risks and Rewards of New Model Devolution, Wales Governance Centre at Cardiff University, February 2016, available at www.cardiff.ac.uk/wales-governance-centre/publications/finance, 13. 111 See eg Welsh Government, Tax Policy Framework, 12 June 2017, available at https://gov.wales/ tax-policy-framework, 1. 112 These plans were interrupted in the South by the Irish War of Independence and superseded by the creation of the Irish Free State (Saorstát Éireann) as a British Dominion in 1922. 113 See generally D Birrell, Direct rule and the governance of Northern Ireland (Manchester, Manchester University Press, 2009).

50 Tax Devolution Service, which attended to various areas of policy including local taxation notwithstanding the imposition of direct rule. The more recent process of devolution to Northern Ireland took place on approximately the same timetable as Scotland and Wales, but its content and conduct reflected the recent history of civil conflict. The settlement conciliating the conflict and underpinning devolution consisted of twin agreements concluded between Northern Ireland’s political parties and between the British and Irish Governments, known collectively as the Good Friday Agreement (GFA). The GFA was put to referenda in both Northern Ireland and the Republic of Ireland and was approved with ‘yes’ votes exceeding 71 per cent and 94 per cent respectively. Soon afterwards, the UK Parliament enacted the Northern Ireland Act 1998. This established a Northern Ireland Assembly on a ‘reserved powers’ model, in this respect following the Scottish rather than the Welsh model of devolution. In relation to tax, Schedule 2 to the 1998 Act allocated to the UK institutions: 9 The following matters— (a) taxes or duties under any law applying to the United Kingdom as a whole; (b) stamp duty levied in Northern Ireland before the appointed day; and (c) taxes or duties substantially of the same character as those mentioned in sub-paragraph (a) or (b).

Although the intention seems to have been for this allocation to have been permanent,114 it will be noticed that the scope of paragraph 9 could be manipulated easily by the UK Parliament simply by restricting the territorial scope of previously UK-wide taxes. As to local taxation, this is clearly not covered by paragraph 9. This produces the same outcome as the Scotland Act 1998 technique of excepting local taxation from the reservation of tax matters to Westminster. The main differences from Scotland in relation to local taxation were that executive competences had been enjoyed by the Northern Irish Civil Service for many years prior to the 1998 devolution process,115 and that the old property rates were not affected by Mrs Thatcher’s reforms. Northern Irish local property taxation is therefore the most unchanged of all of the nations of the UK and is notable for consisting of separate charges for ‘district’ and ‘regional’ government. It is also high by UK standards. Unfortunately, it has not been possible to sustain sufficient agreement amongst the political parties in Northern Ireland to allow the devolved institutions to operate in an uninterrupted manner. Direct rule from Westminster was reinstated for short 114 This observation would be made on the basis of the curious distinction between an ‘excepted matter’ and a ‘reserved matter’ that is in line with previous Northern Irish devolution but not the Scotland Act 1998. The difference seems to be that the allocation of the former to Westminster is supposed to be permanent and to reflect an enduring sense of the powers appropriately held by central government, whereas the latter might subsequently be considered for devolution to Northern Ireland: see B Hadfield, ‘The Nature of Devolution in Scotland and Northern Ireland: Key Issues of Responsibility and Control’ (2010) (3(1) Edinburgh Law Review 3–31. 115 See generally Rates (Northern Ireland) Order 1977/2157.

Tax Devolution 51 periods in 2000 and 2001 and for a much longer period between 2002 and 2007. Relations have since broken down again, and it was not possible to form a workable devolved administration following the Assembly elections of March 2017. At the time of writing there is still no administration, yet the Democratic Unionist Party’s role in supporting the UK Government between 2017 and 2019 has made it politically difficult to reimpose direct rule.116 The Northern Irish Civil Service remains in operation; it obviously cannot legislate, but has sought ways to make certain urgent decisions within the remit of existing executive powers.117 This is relevant to tax devolution arguments because of the stress placed by the Calman, Smith, Holtham and Silk commissions on the need for elected representatives to be accountable for the raising of funds as well as expenditure. This argument has greatly reduced force in contemporary Northern Ireland where elected representatives have failed to form a government and hence cannot be held accountable either for tax or spending.118 This in turn points to further problems. In the absence of a functioning Assembly, the democratic representation of the people of Northern Ireland defaults to Westminster alone, leaving aside for the moment the point that Sinn Féin MPs have a custom of not taking up their seats in the House of Commons. If we follow the logic of the Scottish and Welsh commissions on tax devolution and expect some degree of alignment between electoral accountability, responsibility for spending decisions and responsibility for revenue-raising, then there is a case for saying that taxation powers over Northern Ireland should reside in Westminster. In other words, a return to direct rule but perhaps with a reduced role for the Northern Irish civil service. Of course Sinn Féin’s approach has the consequence of leaving a large proportion of the Northern Irish population unrepresented in the House of Commons, which was one of the reasons why devolved power-sharing institutions were a good idea in the first place. This combination of factors has the potential to create some really insuperable difficulties from a tax perspective, on the basis that the best arrangement of tax powers depends heavily on the wider political situation, which changes continually and in any case reflects an underlying lack of agreement on the region’s constitutional status.

116 The new majority Conservative government has confirmed its commitment to restoring the Northern Ireland Assembly; as of December 2019 it is too early to judge whether these efforts are likely to be successful. 117 See M Devenport. ‘“Limited” time for civil servant rule in Northern Ireland’, BBC News, 9 September 2018, available at www.bbc.co.uk/news/uk-northern-ireland-45465090; Re Buick’s Application for Judicial Review [2018] NICA 26; Northern Ireland (Executive Formation and Exercise of Functions) Act 2018; Reference by the Attorney General for Northern Ireland of devolution issues to the Supreme Court pursuant to Paragraph 34 of Schedule 10 to the Northern Ireland Act 1998 (No 2) (Northern Ireland) [2019] UKSC 1. 118 This is not to deny that civil servants may be held accountable in a different sense, for applying their expertise, experience and judgement to their allotted tasks. On the variety of meanings contained within the word ‘accountability’, see J Bell, ‘Abuse, Accountability and Trust: Secular and Religious Comparisons’ (2013) (4/2) ET-Studies 177–96.

52 Tax Devolution A final piece of the jigsaw is the geographical proximity of Northern Ireland with the Republic of Ireland, and the sea barrier with Great Britain. This is of key importance with regard to the regulation of customs duties after Brexit, which is discussed further in chapter five, but is also relevant to tax devolution. A useful example concerns the devolution to the Northern Irish Assembly of the power to set rates of Air Passenger Duty for long-haul flights, effected by Schedule 23 to the Finance Act 2012. The Assembly promptly decided to reduce the rates to £0.119 This was facilitated by the reduction of the Barnett formula grant to Northern Ireland in order to allay concerns that the devolution process would breach EU state aid rules.120 It was particularly relevant that the very few passenger airports in Northern Ireland are conceivably interchangeable, from a passenger perspective, with airports in the Republic of Ireland but not Great Britain.121 Indeed, the argument that devolution would allow Northern Irish airports to compete in the context of a much lower rate of tax in the Republic of Ireland122 was acknowledged in both the House of Commons123 and Northern Ireland Assembly.124 A more familiar example involves the Northern Irish rate of corporation tax. As is well known, the Republic of Ireland has opted for an unusually low rate of corporation tax and has held to this course despite criticism that it encourages tax avoidance and undermines the tax bases of other states. The argument has been made, not unreasonably, that the disparity between Irish and UK corporation tax rates has been particularly damaging to the Northern Irish economy. In particular, it has encouraged businesses to establish themselves in the Republic in order to take advantage of the low rates and has hampered attempts to reduce Northern Ireland’s reliance on the public sector and on fiscal transfers from the UK. In order to compete effectively with the Republic, it was argued that the Northern Ireland Assembly ought to be given powers to reduce the corporation tax rate below that applicable to the UK as a whole.125 This would provide an advantage to Northern Irish businesses relative to businesses in Great Britain, but this could be reconciled with EU state aid law126 and was politically acceptable given the persistent weakness of the Northern Irish economy. 119 Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012. 120 Antony Seely, ‘Air passenger duty: recent debates and reform’, House of Commons Library Briefing Paper no 5094, 14 February 2019, available at https://researchbriefings.parliament.uk/ResearchBriefing/ Summary/SN05094#fullreport, 19. 121 ibid, 22. 122 Air Travel Tax, since abolished altogether. 123 Northern Ireland Affairs Committee, Air Passenger Duty: Implications for Northern Ireland (HC 2010–12, 1227), 7. 124 Committee for Finance and Personnel, Report on the Legislative Consent Motion: UK Finance Bill (Air Passenger Duty), NIA 53/11-15, 16 May 2012, 8–9. 125 See generally A Seely, ‘Corporation tax in Northern Ireland’, House of Commons Library Briefing Paper no. 7078, 16 May 2018, available at https://researchbriefings.parliament.uk/ResearchBriefing/ Summary/SN07078#fullreport, Public Finance Scrutiny Unit, ‘Corporation Tax (Northern Ireland) Bill: Key Provisions and Considerations’, Northern Ireland Assembly Research and Information Service Briefing Paper no 42/15, NIAR 095-15, 12 March 2015, available at www.niassembly.gov.uk/globalassets/ documents/raise/publications/2015/finance/4215.pdf. 126 Seely, ibid, 14–15.

Tax Devolution 53 Parliament duly enacted the Corporation Tax (Northern Ireland) Act 2015, which confers on the Northern Ireland Assembly the power to manipulate corporation tax rates within certain parameters. The expectation was that the Assembly would use these powers to reduce the rate on trading profits to 12.5 per cent in order to match the Republic of Ireland rate, but this has been delayed by the inability to form an administration following the March 2017 elections. Meanwhile, the main UK rate of corporation tax is being reduced steadily and is expected to drop to 17 per cent by 2020,127 thus reducing the differential between the UK and Irish rates. So the significance of the Northern Irish devolved power seems to be decreasing along with its prospects for speedy implementation. This stasis in Northern Irish devolution contrasts strikingly with the steady demand for broader devolution of tax powers in, and with the gradual convergence of, Scotland and Wales.

D. Subnational Devolution Local taxation has always occupied a curious place in the UK legal system, with its own terminology and bodies of specialist knowledge. However, it intersects with wider discussions of tax devolution on two grounds. The first is the devolution to Scotland, Wales and Northern Ireland of certain central powers relating to local taxes, such as setting the tax rate or ‘multiplier’ for non-domestic rates. The second is the express commitment of the UK Government to devolve power to English local authorities and regions. The then Chancellor, George Osborne, declared in 2015 that the government would support a ‘devolution revolution’ in favour of local authorities.128 As discussed below, an important part of this was the proposal that local authorities should be able to retain a greater proportion of revenues from local property taxes and also gain powers to alter their incidence on local businesses.129 There is more of a touch of rhetoric to such announcements. Local accountability has an intuitive appeal, but it is important to situate recent reforms in the context of radical centralisation in the 1980s and 1990s, as well as significant reductions in central grants to local government.130 A key tension in the development of tax practices in this area is between accountability and fairness. On the one hand, it is integral to the whole idea of local tax autonomy that decisions can be taken by individuals who are closely identifiable with, and accountable to, local 127 Finance Act 2016, s 46. 128 HM Treasury and George Osborne, ‘Chancellor unveils “devolution revolution”’ (News Story, 5 October 2015), available at www.gov.uk/government/news/chancellor-unveils-devolution-revolution. 129 ibid. There is an obvious resonance here with the view, usually attributed to Charles Tiebout, that local governments compete in a market for residents and can manipulate tax policy in order to attract individuals with differing preferences: see further CM Tiebout, ‘A pure theory of local expenditures’ (1956) 64(5) Journal of Political Economy 416–24. 130 See eg P Johnson, ‘The present model of funding for local government is unsustainable’, The Times, 18 February 2019, available at www.ifs.org.uk/publications/13911.

54 Tax Devolution communities. Local elections sometimes suffer from low turnout but are valuable as a contribution to this type of accountability. On the other hand, switching from a system of pooling local tax revenues centrally and redistributing them on the basis of need to a revenue retention system carries the risk that resource-poor authorities will run out of funds and that public services for their citizens will suffer accordingly.131 These problems are exacerbated with taxes such as non-domestic rates that rely on a relatively narrow taxpayer base; some localities simply do not have very many valuable business properties in respect of which high volumes of non-domestic rates can be collected. If such a locality is only permitted to retain its own revenues rather than benefiting from redistribution from more fortunate locales, it might be forced either to cut important public services or to raise the tax burden on the few ratepayers that remain within its jurisdiction. The technical term for rules that provide local authorities with the capacity to provide approximately similar levels of services despite disparities in the quality of their tax base is ‘equalisation’. Much of the detail of current reforms makes sense in the context of attempts to obtain greater local accountability whilst retaining some of the benefits of equalisation. An early experiment was to establish ‘Enterprise Zones’ which could provide property tax reliefs as part of a package of incentives to encourage businesses to relocate to the zone.132 The basic idea is that the concentration of businesses in defined areas with strong infrastructure can help to promote economic growth and the creation of jobs, ultimately raising the yield of non-domestic rates above its previous trajectory. The proceeds of this growth are then shared between the institutions participating in the Enterprise Zone, including relevant local authorities.133 In other words, the benefits and risks of manipulating the usual tax rules are spread over a relatively wide geographical area, avoiding the acute impact on particular local authority areas that is a primary motivator of equalisation strategies. A different and more limited option is to establish a Business Improvement District, in which local businesses within defined areas are balloted on limited tax increases in order to fund local development.134 A more radical variation on the same theme is the Business Rates Retention scheme. This has since 2013 allowed local authorities to retain some of the non-domestic rates that they collect, instead of passing all revenues to central 131 As John Whiting pointed out to me, the most difficult cases are where there are conflicting assessments of needs. If a poor authority claims that there is a need for expenditure on X, whereas a resource-rich authority decides according to its own democratic procedures that X is not worthwhile even in principle, whose view ought to prevail? Should the latter authority subsidise the former despite not providing X to its own residents? 132 See M Ward, ‘Enterprise Zones’, House of Commons Library Briefing Paper no 5942, 17 March 2016, available at https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN05942#fullreport, 12–15. 133 ibid, 4. 134 See M Sandford, ‘Business Improvement Districts’, House of Commons Briefing Paper no 04591, 7 May 2018, available at https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN04591. There is a useful discussion (at 15) of the distinction between BID levies and the similar powers to levy ‘business rate supplements’ under the Business Rate Supplements Act 2009.

Tax Devolution 55 government and receiving grants in return. The aim of the scheme is again to incentivise local authorities to pursue policies that ‘boost … local economic growth’ and that ‘grow and reinvest in their local economies’.135 These incentivisation aims are balanced by a rather complicated set of equalisation measures, which involve central government setting a local authority’s ‘baseline funding level’ based on a needs assessment and then calculating the ‘tariff ’ that it must pay to or ‘top-up’ that it must receive from a redistribution mechanism.136 Authorities that experience particularly strong revenue growth may have to share some of this growth with central government by means of a ‘levy rate’ whereas especially weak authorities can benefit from a ‘safety net’ or floor beneath which central government will not allow their funding to fall.137 In order to ensure that retention rewards current (rather than historic) economic growth, the baseline funding level has to be ‘reset’ periodically, but equally this cannot be too frequent lest local authorities lose any real recognition for their efforts to promote growth. This highlights a broader point, which is that the financial position of local authorities depends to a striking extent on the fine calibration of this system, on the exact determination of baseline funding levels, tariffs, top-ups, levies and resets.138 The current policy trend is to increase the proportion of rates retained locally, with at least some corresponding reductions in existing central government grants.139 Another important feature of the developing system is the ability of local authorities to form ‘pools’ which are treated for rates retention purposes as a single authority.140 This allows the risks and rewards of retention to be spread over wider geographical areas and provides some protection for individual authorities against revenue volatility that affects only their immediate vicinity. In some cases these pools map onto existing regionalism arrangements,141 notably the Greater

135 R Sunak MP, Minister for Local Government, cited in Ministry of Housing, Communities and Local Government, Business Rates Retention Reform: Sharing risk and reward, managing volatility and setting up the reformed system, December 2018, available at www.gov.uk/government/consultations/ business-rates-retention-reform. 136 M Sandford, ‘Reviewing and reforming local government finance’, House of Commons Briefing Papers no 07538, 20 December 2018, available at https://researchbriefings.parliament.uk/ResearchBriefing/ Summary/CBP-7538, 4–6. 137 ibid, 6–7. 138 There is an interesting parallel here with proposals to replace the existing local taxes with a ‘land value tax’. Whilst these might reduce some of the distortions of the existing system from a taxpayer perspective, it is difficult to see that they would make any difference to the underlying complexities in local government finance that arise from the desire to balance incentivisation with equalisation and local autonomy with central control. For a useful overview with discussion of the devolution considerations, see M Drakeford, ‘Land Value Taxation: from proposition to practical policy’, Fabian Society, 29 April 2012, available at https://fabians.org.uk/land-value-taxation-from-proposition-to-practical-policy/. 139 ibid, 12–13. For an overview of the 75% and 100% rate retention proposals and pilot schemes, see 10–15. Recent consultation exercises have also recommended changes to the equalisation mechanisms, which though technical in nature may have important consequences for the allocation of funds: see eg discussion of ‘full resets’, ‘partial resets’ and ‘phased resets’ in Ministry of Housing, Communities and Local Government, above n 135, 11–15. 140 ibid, 47. 141 Refer to text at n 26.

56 Tax Devolution Manchester Combined Authority. This authority has since 2014 experienced six rounds of devolution142 and has participated in early rates retention pilots as well as enjoying powers to impose business rates supplements.143 One potential benefit of embedding fiscal powers within these wider schemes for regional government is to maximise the alignment between responsibility for revenue-raising, expenditure and the existence of a highly visible mayor who can be held ultimately responsible for the conduct of the authority. An important recent example of regional fiscal autonomy is the Crossrail project. This major scheme to construct a new railway line across London was funded in part by a 2p supplement on non-domestic rates for some properties. This was announced in 2009144 and imposed by the Greater London Authority in April 2010 under the authority of the Business Rates Supplements Act 2009.145 This is a more significant source of revenue than it might seem given that property in London is usually more expensive, and often appreciates at a higher rate, than property elsewhere in the UK. In the financial year 2019–20 the supplement is expected to raise £124.7m,146 with the GLA hoping to raise at least £6.6bn from the business rates supplement by the target end date of 2037–38.147 The devolution of fiscal powers to local and regional institutions in England is noteworthy and exhibits some of the same features as Scottish and Welsh devolution albeit to a shallower extent.148 The idea that it involves a significant change to the UK constitution is much more tenuous. The closure of the GLA or the Greater Manchester Combined Authority might provoke widespread political opposition, but the dissolution of the Greater London Council by Act of Parliament in 1986 suggests that this could be overcome.149 In any case, whilst there is an

142 See Greater Manchester Combined Authority, ‘Devolution’, available at www.greatermanchesterca.gov.uk/who-we-are/devolution/. 143 Sandford, above n 26, 12, 35. 144 Greater London Authority, The Crossrail Business Rate Supplement Summary of initial prospectus, July 2009, available at www.london.gov.uk/what-we-do/business-and-economy/promoting-london/ paying-crossrail-business-rate-supplement. 145 ibid, 5. For more detail see F Medda and L Cocconcelli, ‘To Tax or not to Tax: The case of London Crossrail’ Quantitative and Applied Spatial Economic Research (QASER) laboratory, UCL, 2013, available at www.semanticscholar.org/paper/To-Tax-or-not-to-Tax-%3A-The-case-of-LondonCrossrail-Medda-Cocconcelli/cea16a2ab3cbcc2c54ff39dfbad0a26b788307ec. 146 S Khan, ‘MD2430 Crossrail Business Rates Supplement 2019–20’ (Mayoral decision, 12 February 2019), available at www.london.gov.uk/decisions/md2430-crossrail-business-rates-supplement-2019-20. 147 Mayor of London and London Assembly, ‘Paying for Crossrail: business rate supplement’, available at www.london.gov.uk/what-we-do/business-and-economy/promoting-london/payingcrossrail-business-rate-supplement. 148 For instance, proposals have been made for a local income tax (N Amin Smith, T Harris and D Phillips, ‘Is a local income tax the best way to sustainability for local government?’, Institute of Fiscal Studies, 21 March 2019, available at www.ifs.org.uk/publications/14006) but the prospects of these being implemented in the immediate future seem extremely remote (see also B Taylor, ‘The SNP’s long, slow retreat from local income tax’, BBC News, 2 March 2016, available at www.bbc.co.uk/news/ uk-scotland-scotland-politics-35711080). 149 See Local Government Act 1985 s 1, which specifies the date of abolition as 1 April 1986.

Tax in the Constitution 57 argument for saying that elements of the Scottish and Welsh funding settlements are irreversible,150 it is likely that central government could modify even central elements of the tax regimes relating to London and Manchester without serious repercussions. In some instances not even the basic institutional arrangements are taken particularly seriously. After a very narrow referendum decision in 2001 to establish an elected mayoralty in Hartlepool in County Durham, the ensuing election campaign was won by a man dressed as a monkey, who held the post for 11 years until the mayoralty itself was abolished in a further referendum. There is deep local significance in the aforementioned money,151 yet taken as a whole these events do not provide convincing evidence for historically-important constitutional change.

III. Tax in the Constitution The difficulty, and curiosity, of this material in terms of assessing the constitutional claims of chapter one is that ‘devolution’ covers a spectrum of initiatives ranging from the critically important to the trivial. A broad dividing line might be drawn between tax devolution to Scotland, which seems irreversible in political if not legal terms; to Wales, which is headed in a similar direction; and to English regional and local authorities, whose tax powers are noteworthy but shallower and one suspects more capable of being removed by Parliament without overwhelming repercussions.152 Northern Ireland occupies a special position in that devolution has been limited by a wider collapse of political trust. It was anticipated in the previous chapter that the constitutional significance of taxation would be sensitive to context; this turns out to be the case within the topic of devolution as well as between devolution and the case studies in chapters three to five. It is nevertheless possible to suggest some broader interpretations of the evidence presented in this chapter. It is therefore considered, under the following subheadings, whether tax devolution is best understood as a reflection of high politics; the beginning of a more conventional system of ‘fiscal federalism’; a means of building capacity within devolved institutions; or a fairly trivial process that is outweighed by HMT’s continued control. It will transpire that there is an element of truth to each of these suggestions, the balance between the four being struck differently in different settings.

150 Though perhaps weakened by Miller (no 1): refer to n 17 above. 151 See D Leatherdale, ‘Was a monkey really hanged in Hartlepool?’, BBC News, 17 September 2017, available at www.bbc.co.uk/news/uk-england-tees-40801937. 152 Note that the position of Scottish and Welsh local authorities has not been reviewed in this chapter. There is, also, a gradation between the well-established systems of devolution in London and Greater Manchester and the relatively weaker arrangements elsewhere.

58 Tax Devolution

A. Devolution and High Politics The first possibility is that tax devolution is best seen as a reflection of the ‘high politics’ surrounding the future of the Union holding together England, Scotland, Wales and Northern Ireland. At first sight tax is unpromising material for such a suggestion. Fiscal legislation can be uncompromisingly detailed and there are various reasons why a tax provision might be included within a Finance Bill that are more plausible than the influence of high politics or constitutional deliberation. The previous regime might have become too difficult to administer, divorced from present-day commercial realities or prone to avoidance. In other cases, the law is reformed more deliberately in line with the recommendations of economists or other tax designers, although this is perhaps rarer than many scholars would prefer to admit.153 So far from reflecting politics, some of those recommendations may be best interpreted as attempts to insulate tax collection from the vicissitudes of politics. Nevertheless, it is undeniable that explicit deliberations on the future of the UK have had a peculiarly direct influence on tax devolution, most obviously in relation to Scotland and Northern Ireland. In Scotland the importance of tax to the wider political settlement has long been recognised, not least because taxraising powers can help the Scottish Government to cater to the particular public spending preferences of its citizens. Indeed, the tax recommendations of the Smith report famously formed part of an attempt to persuade Scottish voters that aspirations for greater autonomy could be accommodated even in the event of a ‘no’ vote in the independence referendum of 2014. It is tempting to speculate whether the delayed VAT assignment reflects an increased caution within the SNP around the disadvantages of devolution, such as increased exposure to revenue volatility as well as to political blame for unpopular fiscal decisions. In broad terms, though, the Scottish experience does provide some evidence of high politics reinforcing the trend towards greater tax autonomy. The opposite phenomenon can be seen in Northern Ireland, where gaps in political leadership have delayed the implementation of powers conferred by the Corporation Tax (Northern Ireland) Act 2015 and stalled discussion of further devolution of powers already enjoyed by Scotland and Wales. Tax devolution to English regions and localities is comparatively trivial, could more easily be reversed and often seems to reflect ‘top down’ central government policy to a greater extent than genuine ‘bottom up’ local demand for greater control over fiscal matters. It has also been described as a means for the UK Government to deflect blame for the consequences of expenditure cuts.154 Nevertheless, it 153 See generally CC Hood, ‘British tax structure development as administrative adaptation’ (1985) 18(1) Policy Sciences 3–31; a similar argument is made in a more abstract way by D de Cogan, ‘Michael Oakeshott and the Conservative Disposition in Tax Law’ in M Bhandari (ed), Philosophical Foundations of Tax Law (Oxford, Oxford University Press, 2017). 154 See M Hodge and S Jenkins, ‘The Duel: Is the government’s city devolution agenda really a cover for cuts?’, Prospect, 16 February 2017.

Tax in the Constitution 59 reinforces the impression from Scotland, Wales and Northern Ireland that the law in this area is peculiarly intertwined with broader political projects. It is heavily dependent on high-level decisions on the future governance of the UK and its constituent parts. It is also at its most fully developed in cases where there is clear democratic accountability for tax decisions, for example where there are elected finance ministers or mayors to take responsibility when things go wrong. From this particular perspective, the role of legal or economic rationality in the development of tax devolution may be of secondary importance, or at least dependent on approval by the political actors who matter. The primary reason for the round of tax devolution following the Smith report was not careful consideration of theory but rather the promises made by Unionist politicians in order to persuade voters not to favour Scottish independence. Whether these reforms reflect a rationally supportable model of fiscal federalism, for instance, is clearly important but this question was not at the heart of events.155

B. Tax and Federalism Whilst tax devolution seems to be rather dependent on high politics, the idea that the UK is embarking on something that can recognisably be termed ‘fiscal federalism’ should not be dismissed too easily. This suggestion gains force from two important trends, being the shift from an ‘ad hoc’ to a ‘best practice’ approach to tax devolution and the development of economics scholarship towards a more inclusive understanding of what federalism is. The degree of standardisation in UK tax devolution should not be exaggerated. Yet there is strong evidence that Welsh policymakers, in particular, have drawn upon successful and cautionary experiences in Scotland and elsewhere in the course of deciding how their own tax system might develop.156 This has given rise to something approaching a ‘shopping list’ of tax powers that can be made available to devolved institutions, and which might indicate the outlines of an emerging system of fiscal federalism within the UK. These powers include the coordination of local taxation, the setting of rates and thresholds of income tax, the receipt of assigned revenues from VAT and a clutch of minor taxes including Landfill Tax, Aggregates Duty, Air Passenger Duty and Stamp Duty Land Tax, with appropriate adjustments being made to direct transfers from central government. Meanwhile, the economic discipline of fiscal federalism has lost some of its early confidence in laying down prescriptions for how tax competences ought to 155 This appears strongly from the Holtham report (Independent Commission, above n 90), which cites fiscal federalism research at p 10, but at p 14 notes that: ‘The Commission has no political representation. We have taken the current devolution settlement as a given … Models of fiscal federalism or full autonomy are therefore outside our remit’. 156 That this is simply not a one-way process of learning by Wales from Scotland is demonstrated by the greater willingness of Wales to consider new ideas for taxation and the greater caution of Wales towards ‘no detriment’ principles, discussed in the text at nn 106 and 110 respectively.

60 Tax Devolution be shared between national and sub-national governments. In part owing to the influence of ‘public choice’ theories that take a pessimistic view of the likelihood of officials to pursue the interests of their constituents, ‘second generation’ fiscal federalists have tended to emphasise the importance of creating institutions that constrain and guide the behaviour of officials.157 As the exact nature of institutions is likely both to reflect and shape local preferences, this encourages a style of scholarship that seeks to lay out a range of options for federalism rather than arriving at solutions that are universally applicable. This open-ended approach is visible in the OECD’s work158 and in Boadway and Shah’s authoritative volume on fiscal federalism,159 as well as in the more legally-focused collection edited by Bizioli and Sacchetto.160 Even from the standpoint of this more flexible approach, some features of UK tax devolution are quite unusual. The most obvious is the highly asymmetric distribution of population, with England accounting for around 84 per cent of total UK inhabitants. As we have seen, initiatives to encourage English regional devolution remain rather shallow, although institutions like the Greater London Authority and the Greater Manchester Combined Authority might provide the starting point for a more balanced federal structure in the future. Another distinctive feature of the UK system is the weak constitutional entrenchment of subnational institutions. We have seen from Miller (no 1)161 that the sovereign right of the Westminster Parliament to legislate on any subject whatsoever is capable of overriding devolved institutions even on such core constitutional questions as membership of the EU. Tax powers must be at least equally vulnerable to the exercise of Parliamentary sovereignty, though whether the UK could unilaterally repeal Scottish tax law without politically unacceptable consequences is a more difficult and finely balanced question.162 In other respects, however, many of the discussions taking place around tax devolution and localism are readily familiar from the international fiscal federalism literature. The types of tax powers that have been devolved, and considered for devolution, are recognisable from other jurisdictions.163 Moreover, the arguments deployed in favour of devolution (eg, aligning tax and spending) and against

157 See eg WE Oates, ‘Toward a Second-Generation Theory of Fiscal Federalism’ (2005) 12 International Tax and Public Finance 349–73; Y Qian and BR Weingast, ‘Federalism as a Commitment to Preserving Market Incentives’ (1997) 11(4) The Journal of Economic Perspectives 83–92; G Brennan and JM Buchanan, The Power to Tax: Analytical Foundations of a Fiscal Constitution (Cambridge, Cambridge University Press, 1980). 158 OECD and KIPF, above n 50. 159 R Boadway and A Shah, Fiscal Federalism: Principles and Practice of Multiorder Governance (Cambridge, Cambridge University Press, 2009) ch 4. 160 G Bizioli and C Sacchetto (eds), Tax aspects of fiscal federalism: a comparative analysis (Amsterdam, IBFD, 2011). 161 See text at n 17, above. 162 An official familiar with Scottish taxation described this possibility to me as ‘for the birds’. Northern Ireland, as always, is a special case, and a further period of direct rule is quite conceivable: see text above n 117. 163 OECD and KIPF, above n 50, ch 4.

Tax in the Constitution 61 devolution (eg, ease of capital flight) are easily understood within the frameworks set out in Boadway and Shah’s book or in the OECD reports on fiscal federalism. The UK’s shift away from unitary taxation, in sum, has not been entirely exceptional, despite its ad hoc beginnings and despite the continuing dominance of England within the Union.

C. Tax and Capacity Building An important question concerning tax devolution is whether it assists (or indeed necessitates) the building of institutional capacity, in the sense that it enhances the ability of devolved institutions to govern more generally. There are various ways in which this might happen. First, control over revenues may mitigate the risk of central government withdrawing funds in retaliation for some policy disagreement. The force of this point would depend on contextual factors such as the detailed arrangements for central input into devolved decision, devolved input into central decisions, the degree to which revenues assigned to subnational units are protected from unilateral revocation, and so forth. Secondly, it is well known outside the devolution context that tax powers are used for a variety of purposes other than revenue raising. Whether or not tax specialists approve of it,164 tax rules are not always calibrated to raise the greatest possible revenues but to express a range of political agenda relating to the wealth and income distribution, to desirable and undesirable activities and otherwise. Indeed, judging from the relevant commission reports, the central justification for tax devolution is not to do with revenue-raising but rather ensuring ‘accountability’ for expenditure decisions. Yet the range of powers enjoyed by the Scottish authorities over income tax alone go well beyond what would be strictly necessary to improve accountability. They rather enable the development of characteristic Scottish ideas about matters such as what a welfare state ought to provide, or what it means to be a Scottish citizen, as is also acknowledged in the commission reports. At the least, then, Scottish and to some extent Welsh taxation is performing all three of the functions famously outlined by Avi-Yonah.165 Thirdly, in line with the corresponding discussion in chapter one,166 it is possible to argue that the Scottish and Welsh tax systems are going somewhat beyond Avi-Yonah’s three functions by establishing their respective jurisdictions as credible units of government and potential future independent states. It will be remembered that the tax competences described in this chapter involve devolved authorities in drawing up policy, liaising with the UK Government, enacting devolved legislation, collecting taxes and resolving disputes. These tasks require 164 See generally K Hickman, ‘Administering the Tax System We Have’ (2014) 63 Duke LJ 1717 and also the tax expenditure literature eg M Burton and K Sadiq, Tax Expenditure Management: A Critical Assessment (Cambridge, Cambridge University Press, 2013). 165 Refer to this volume, 2. 166 ibid.

62 Tax Devolution personnel, expertise and physical infrastructure, as well as professional skill and insight into how best to use the available powers. Once the individuals responsible for devolved taxation gain a reputation for competence, they will be in a strong position to argue for the transfer of further powers from central government167 and may even be asked to perform other, non-tax, functions.168 Indeed this rolling programme of tax devolution is very close to what has in fact happened in Scotland and Wales since 1998. Fourthly, it might be argued that the particular manner of devolving tax powers over the past two decades has created path-dependencies from which it will be difficult to diverge in future. For instance, certain options are now widely accepted (eg, the power to vary income tax rates) whereas others have been less successful (eg, perhaps corporation tax devolution or no-detriment principles). More importantly, the repeated rounds of tax devolution in Scotland, Wales, Greater Manchester and elsewhere have created an expectation that further rounds might be possible. Devolution has turned out to be a dynamic process rather than a once-and-for-all event. Fifthly, it was observed above that there has been a certain convergence in Welsh and Scottish taxation, mirroring Wales’s shift from a conferred-powers to a reserved-powers model of devolution. If this trend continues, then the UK’s arrangements for devolved taxation will start to look more like a model of fiscal federalism – albeit adapted for the particular needs of the jurisdiction – rather than the somewhat ad hoc collection of measures bequeathed by the Blair government. None of these factors is sufficient to prove any strong claim that taxation is causative of wider changes in the constitution, and the delay in agreeing the assignment of VAT suggests that the direction of travel towards greater separation is not inexorable even in Scotland. Nevertheless, the association made in the Calman report between the ‘system of funding’ and the ‘constitutional relationship that we want to see between Scotland and the rest of the UK’169 seems to be borne out. Scotland and Wales are becoming more distinctive than they were, and their tax systems are an integral part of this broader constitutional shift.

D. Central Control A brief word of caution is warranted around overenthusiastic ideas that tax is somehow a guarantor of subnational autonomy. Northern Ireland, in which 167 A different route to the same point is the argument of Brennan and Buchanan that governments should be treated as utility- and revenue-maximisers. If this holds for sub-national units, the implication is that the Scottish administration, for example, will wish to build on its existing revenue-raising powers by accumulating others. See generally Brennan and Buchanan, above n 157, ch 2. 168 The tendency for tax administrators to be asked to perform non-tax functions is detailed at more length in P Tuck, D de Cogan and J Snape, ‘A tale of the merger between the Inland Revenue and HM Customs & Excise’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 9 (Oxford, Hart Publishing, 2019). 169 Refer to n 53, above.

Interim Conclusions 63 certain tax powers were exercised locally even during the long period of direct rule from Westminster prior to 1998, is evidence of precisely the opposite, that tax devolution will not protect autonomy if more pressing political factors point towards recentralisation. As we know, direct rule has once again been considered in the light of the inability of the Northern Irish parties to form a government. Even in Scotland, Miller (no 1)170 cautions against too quick an assumption that the devolution of tax powers is irreversible. Meanwhile, there are hard law (eg, statutory powers), soft law (eg, MoUs and Fiscal Frameworks) and administrative (eg, tax forums) mechanisms for HM Treasury to exert continuing influence over devolved tax powers. This is particularly obvious in relation to English ‘localism’, in which there has been sufficient flexibility for central government to design and fund a ‘retail relief ’ from non-domestic rates and then to implement this using apparently ‘local’ powers.171 Devolution, it seems, may involve a transformation rather than a cessation of central control.

IV. Interim Conclusions These themes, to which others might be added, paint a picture of considerable complexity, especially as they apply with variable force to different types of ‘devolution’. Nevertheless, they do allow for some intelligible interim responses to the five basic claims outlined in chapter one.172 First, then, devolution does exhibit a marked overlap between the concerns of tax and constitutional lawyers. Secondly, constitutional change is having a marked impact on taxation, most obviously in Scotland (divergence from the UK) and Northern Ireland (failure to diverge on account of high-level political problems). Thirdly, there is no ‘smoking gun’ evidence within this chapter that tax decisions are having a causative influence on constitutional change. However, it is possible to make the weaker suggestion that devolution is enhancing institutional capacity at a subnational level and thereby reinforcing a wider move towards more recognisably federal constitution. Fourthly, the interrelation of tax and the constitution is heavily context-specific, with high politics always relevant but questions of federalism and capacity-building particularly relevant to Scotland and Wales, and central control particularly visible with English regional and local devolution. Fifthly, the idea that devolution processes and the supporting tax rules are best treated as two aspects of one problem is obvious and widely accepted.

170 Miller (no 1), above n 11. 171 See eg Department for Communities and Local Government, Business Rates: Retail Relief (Guidance, January 2014, withdrawn April 2016), available at www.gov.uk/government/publications/ business-rates-retail-relief. 172 This volume, 27.

3 Reform and Scrutiny of Tax Policymaking This chapter turns from devolution to consider the central governing institutions of the UK. Do the recent changes to tax policymaking processes reflect wider constitutional upheavals? Have they had any influence in return on the wider evolution of the UK as a state? In order to keep the discussion within reasonable bounds, the scope of the chapter is restricted to questions of tax reform and pre-legislative scrutiny of policy. This is admittedly a subset of a wider range of problems that might usefully have been reviewed, had space permitted, including tax administration, compliance, post-enactment scrutiny and judicial review.1 Nevertheless, even taken alone, the pre-legislative stage of tax policymaking leaves us with plenty to discuss and goes very close to the heart of how the UK’s constitution processes tax problems. As with chapters two, four and five, the present material is divided into three parts. The first provides a brief overview of relevant debates in constitutional law. The second explains how the problems of reform and pre-legislative scrutiny manifest in the tax field and point out the special considerations that may apply to tax policymaking. The final part draws on this evidence to make some provisional observations on the claims made in chapter one. In broad terms, this will turn out to be the weakest of the four case studies in terms of demonstrating a dynamic interaction between tax and constitutional law. This partial failure to progress the theses of the book is itself instructive and will be considered further in chapter six.

I. Constitutional Debates The process of transforming an idea for public policy into a legally binding set of statutory provisions invites a whole range of questions. As a matter of substance, is the policy any good, whatever we mean by this? As a matter of process, whose responsibility is it to develop the idea into workable form, canvass support and expertise from non-state actors, express the policy in statutory language, encourage Parliament to accept the draft legislation, and of course scrutinise or even

1 Some

of these matters, however, enter into the discussion of taxpayer rights in ch 4.

Constitutional Debates 65 oppose the idea at any stage of development? The task of evaluating the substance of policy is not usually dominated by lawyers, at least if we exclude those proposals with a special relevance to the legal profession (eg, tribunals reform). In contrast, the more procedural and abstract questions of who has and who should have control and oversight of law-making are pre-eminently the concern of constitutional lawyers. The usual starting point in English law is that Parliament decides what laws to enact, when and how. This is expressed most famously by Dicey in the passage also cited in the previous chapter. The principle of Parliamentary Sovereignty means neither more nor less than this, namely, that Parliament … has, under the English constitution, the right to make any law whatever; and, further, that no person or body is recognised by the law of England as having a right to override or set aside the legislation of Parliament.2

It is an understatement to say that this definition of Parliamentary sovereignty does not command universal acceptance, despite its almost canonical status to earlier generations of English lawyers. In particular, it is often questioned whether Diceyan sovereignty is capable of accounting for the domestic status of EU law, human rights law and ‘manner and form’ restrictions on Parliamentary competence such as the reduced powers of the House of Lords with respect to ‘money bills’.3 In the opinion of some writers these controversies are symptomatic of a deeper judicial role of elaborating underlying constitutional principles, which may be used not only as an aid to the interpretation of statutes but if necessary to place absolute constraints on Parliament’s law-making powers.4 Even if we set aside these debates and assume that Diceyan sovereignty accurately describes the scope of Parliament’s legal capacity to enact legislation, it lacks explanatory power with respect to more detailed questions of how policy is processed and scrutinised before it earns the status of legislation. These matters of Parliamentary procedure are not exclusively or even primarily the preserve of lawyers but are essential to any informative account of law-making processes and institutions in the UK. For example, despite Dicey’s conventional attribution of the right to make law to Parliament, the initiative for almost all enacted legislation comes from government Ministers. As long as the government commands a majority of seats in the House of Commons, which admittedly has not been as certain throughout the 2010s as previously, the smooth passage of legislation is usually assured. Many commentators regret the dominance of the executive over Parliament, urging MPs to scrutinise government initiatives more robustly and

2 A Venn Dicey, Introduction to the study of the law of the constitution, 8th edn (Indianapolis: Liberty Fund, 1982) 3–4. 3 Refer generally to M Elliott and R Thomas, Public Law, 3rd edn (Oxford, Oxford University Press, 2017) 229–53. On money bills, see Parliament Act 1911, s 1. 4 See eg TRS Allan, The Sovereignty of Law (Oxford, Oxford University Press, 2013).

66 Reform and Scrutiny of Tax Policymaking recommending institutional reforms to allow this role to be performed with more independence from party politics and Ministerial control.5 The most obvious way for MPs to provide this additional scrutiny is through the system of ‘select committees’ that was established in 1979.6 The House of Commons has a select committee ‘for each government department’,7 though notably there is no dedicated tax committee. The House of Lords has six major select committees, some of which have important subcommittees such as the Finance Bill Sub-Committee of the House of Lords. In recent years there have been efforts to increase the robustness of the system, for instance by introducing secret ballots for the election of select committee chairs in the House of Commons in 2010.8 These signs of increased assertiveness are likely to be welcomed equally by those who would prefer Parliament to take more initiative in policy development and those who accept the central role of government in designing legislation but hope for increased scrutiny by MPs. A more traditional way for Parliament to hold the government to account is through the principle of ministerial responsibility. The precise contours and means of enforcement of this principle are disputed, but the broad idea is that Ministers are answerable to Parliament for the acts and omissions of government departments under their control.9 This not only provides Parliament with a specified individual with whom to associate particular policy or administrative concern, it also insulates civil servants from at least some types of political pressure, although not necessarily from all of the consequences of serious failure.10 This necessarily brief explanation of ministerial responsibility hides various complexities. There are particular controversies around whether ministers ought to resign in response to failures, how the principle should respond to the delivery of public services through independent agencies and whether civil servants ought to respond to Parliament on their own behalf in technical areas where Ministers lack detailed expertise. As we shall see, however, the more immediate consideration in the tax field is that revenue administration is carried out by the 5 The scrutiny role of MPs is analysed helpfully in A Tomkins, ‘What is Parliament for?’ in N Bamforth and P Leyland (eds), Public Law in a Multi-Layered Constitution (Oxford, Hart Publishing, 2003). 6 Elliott and Thomas, above n 3, 435. The oldest Commons committee, the Committee of Public Accounts, dates back to 1861: see Committee of Public Accounts, ‘History – Public Accounts Committee’, available at www.parliament.uk/business/committees/committees-a-z/commons-select/ public-accounts-committee/history-of-committee/. The principle of auditing government spending is even older, with its roots in the 17th century: see J Brewer, The Sinews of Power: War, Money and the English State, 1688–1783 (London, Unwin Hyman, 1989) 144–47. 7 See House of Commons, ‘Select Committees’, available at www.parliament.uk/about/how/ committees/select/. 8 See Elliott and Thomas, above n 3, 435 and also House of Commons Reform Committee, R ebuilding the House (HC 2008–09, 1117) ch 3. 9 Elliott and Thomas, above n 3, 409–24; Cabinet Office, Ministerial Code (January 2018), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 672633/2018-01-08_MINISTERIAL_CODE_JANUARY_2018__FINAL___3_.pdf. 10 ibid, 419–20.

Constitutional Debates 67 non-ministerial department HMRC. The question of ministerial responsibility, as may be imagined, becomes quite involved when there is no minister to be held responsible, though of course the Chancellor of the Exchequer and Treasury Ministers remain responsible for tax policymaking activities of HM Treasury. Before moving on to consider the peculiarities of taxation, it is worth considering a further general point of controversy, which concerns the permeability of government policymaking to outside influence. At a very general level, openness to consultation can be something of a double-edged sword. On the one hand, it can provide the government with access to invaluable expertise from the private sector and non-governmental organisations, at the same time as encouraging affected parties to become involved in the legislative process and ultimately to accept the outcome with good grace. Consultation can therefore serve as a useful supplement to Parliamentary elections, allowing for more detailed and more frequent comment on particular policies than is possible through the ballot box.11 More generally, consultation processes, if managed well, help to reinforce reassurances that the government is committed to transparency and is open to scrutiny not only from MPs but to external observers. On the other hand, consultation alters representative democracy by privileging the views of those who respond, and especially those who are well-informed or for other reasons are taken particularly seriously. Whilst this may help the government to translate its policy commitments into concrete and workable form, there are risks involved in allowing private sector actors with their own agenda to permeate the legislative process, up to and including outright regulatory capture. The question of external input into policy arises in a slightly different form in arguments that parts of the legal system are irretrievably incoherent or unsuited to modern conditions. On this view, there is little to be gained by incremental improvements at the hands of policymakers, administrators or judges. What is needed instead is the repeal of existing arrangements and their replacement with a newly designed system. As we have already seen in chapter one,12 tax policy seems to be particularly fertile ground for radical reforming schemes rooted in economic theory, yet the impulse to rationalise has been applied to widely varying fields of law at least since the time of Jeremy Bentham.13 The UK legal systems in general, and tax law in particular,14 have long resisted attempts at wide-scale codification, but have been much more open to planned reform projects within

11 For a useful review of some of the potential benefits of consultation, see generally L Zetter, Lobbying: the art of political persuasion, 2nd edn (Petersfield, Harriman House, 2011) [1.3], [2.1]. 12 Refer to this volume, 23 ff. Compare, however, the move of fiscal federalism theory away from onesize-fits-all recommendations: Refer to this volume, 59 ff. 13 The two topics of tax and Bentham are combined in an illuminating way in J Frecknall-Hughes, ‘Jeremy Bentham – Developing Ideas About Taxation and Law’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 9 (Oxford, Hart Publishing, 2019). 14 Witness, for example, the failure to implement the proposals of the Income Tax Codification Committee, Report. Volume I, report and appendices (Cmd. 5131, 1935–36).

68 Reform and Scrutiny of Tax Policymaking discrete areas.15 This can be seen with particular clarity with the Law Commission and Scottish Law Commission, established under the Law Commissions Act 1965 with the following functions: It shall be the duty of … the Commissions to take and keep under review … the law … with a view to its systematic development and reform, including in particular the codification of such law, the elimination of anomalies, the repeal of obsolete and unnecessary enactments, the reduction of the number of separate enactments and generally the simplification and modernisation of the law …16

Despite this reference to ‘codification’, the reputation of the Law Commissions has been built on more discrete projects with restricted scope, codification being more or less abandoned in practice.17 An important tension is whether the performance of the Law Commissions ought to be judged primarily on the implementation rate of their recommendations. Whilst this might offer a convenient measure of effectiveness, one of the most valuable features of the Commissions is their ability to investigate areas of law that are otherwise too technical or non-political to attract the attention of government.18 This might be thought worthwhile even if it reduces implementation rates. The association of the Law Commissions with relatively technical areas of ‘lawyers’ law’ is sometimes mirrored by doubts about their involvement in more politically contentious fields.19 This distinction has been criticised,20 and in any case does not apply naturally to tax law, which can be both technical and politically sensitive to the extent of calling into question the ability of states to continue providing their accustomed range of functions.21 Nevertheless, it is not terribly surprising that tax has not featured very frequently in the reports of the Law Commissions, and the recent exceptions are concerned with conspicuously neutral matters such as the repeal of legislation made obsolete by the ‘rewrite’ acts of 2001–10.22 The reluctance of these half-century old institutions to become involved in taxation also raises, although it does not answer, questions as to whether radical tax reform is quite as viable as some of its supporters insist.23 15 See generally M Dyson, J Lee and S Wilson Stark, ‘Introduction’ in M Dyson, J Lee and S Wilson Stark, Fifty Years of the Law Commissions: the Dynamics of Law Reform (Oxford, Hart ublishing, 2016). P 16 Law Commissions Act 1965, s 3. 17 See Dyson, Lee and Stark, above n 15, 12–14, who report some continuing support for codification; compare the view of Stark that the reference to codification in the Law Commissions Act 1965 ought to be removed: see S Wilson Stark, The Work of the British Law Commissions: Law Reform Now? (Oxford, Hart Publishing, 2017) 10. 18 Stark, ibid, 8–10. 19 See discussion in E Clive, ‘Law Reform and Social Policy’ in Dyson, Lee and Stark, above n 15. 20 Stark, above n 17, 4. 21 Refer generally to this volume, ch 1. 22 See Law Commission, ‘Taxation’, available at www.lawcom.gov.uk/project/taxation/, which, however, has not even reached ‘pre-consultation’ stage at the time of writing. 23 Refer to text below n 152 (‘Improving reform and scrutiny’).

Tax Debates 69

II. Tax Debates It was argued in chapter one that tax should be recognised not only as positive law but as an important contributor to the establishment, definition and maintenance of a state. One of the methods of identifying such a role was to look for instances where ‘legal doctrines or political activity seems surprisingly accommodative of the protection of revenues’.24 At first sight, the material of the present chapter matches this description closely. Leaving aside for the moment the notoriously weak scrutiny of tax policy and draft legislation, there is a reliable track-record of failure in the pursuit of reforms that are more than merely piecemeal or incremental. These failures are sometimes attributed to political ‘meddling’ with tax policy, and to the inbuilt conservatism of HMT and HMRC.25 However, they make even more sense if we bear in mind the central importance of reliable revenues to the continuing functioning of the state. It is understandable from this perspective for governments to be wary of radical reform, not only because the potential disruption to otherwise steady revenues, but also because of the loss of flexibility and control implied at least by the more structured tax design proposals. It will be obvious to readers of chapter two, for example, that attempts to insulate tax policy decisions from ordinary politics, leaving only rate-setting powers, is unlikely to be uncomplicatedly attractive either to devolved or central governments. These possibilities are unpacked in the following order. First, the procedures for reform and pre-legislative scrutiny are examined, focussing in turn upon Parliament, government, the judiciary and Westminster outsiders.26 There follows a short discussion of why it is so difficult and controversial to pursue rational reform of the tax system. This feeds into the final section of the chapter, which reflects further on the claims put forward in chapter one.

A. Parliament i. Parliamentary Control The principle of Parliamentary control over the imposition of tax is expressed in Article 4 of the Bill of Rights 1688, which provides: That levying Money for or to the Use of the Crowne by pretence of Prerogative without Grant of Parlyament for longer time or in other manner then the same is or shall be granted is Illegall.

24 Refer to this volume, 29. 25 I discuss this phenomenon at more length in D de Cogan, ‘Oakeshott and the conservative disposition in tax law’ in M Bhandari (ed), Philosophical Foundations of Tax Law (Oxford, Oxford University Press, 2017). 26 This does not include the devolved institutions, which are instead examined in ch 2.

70 Reform and Scrutiny of Tax Policymaking Further, Article 1 prevents governments from recapturing their independence from Parliamentary authorisation by granting dispensations from enacted legislation, stating: That the pretended Power of Suspending of Laws or the Execution of Laws by Regall Authority without Consent of Parlyament is illegall.

Despite the antiquity and generality of these words, they are still occasionally cited in tax cases, most famously in a 1979 case where Article 1 was used in support of the House of Lords’ decision not to interpret a statutory provision so as to allow the Inland Revenue a choice of tax treatments.27 It is straightforward, then, that taxes may only be raised with the consent of and in the manner provided by Parliament.28 As in other areas of law, however, this does not prevent the domination of the tax legislative process by the executive. The consequence of this domination is that the initiative, design and drafting of tax legislation typically reflects the priorities of the executive government, with Parliament providing formal approval as well as exercising a scrutiny role. Many commentators hold that even these functions are performed by Parliament in a wholly inadequate manner.29 The interplay between these factors, formal control by Parliament and substantive control by the government, explains many of the structural features of the tax legislative process. First, the Budget speech itself, one of the great showpieces of executive power in the UK constitution, owes much to the limits of Parliamentary tolerance in the early- to mid-nineteenth century. Faced with an acute need for revenues to fund the wars with revolutionary and Napoleonic France, the government persuaded Parliament to introduce income taxation. The new tax was highly unpopular, and one of the means of securing consent was to promise that it was only a temporary expedient that would be repealed as soon as possible.30 This promise was fulfilled in 1816 following the end of the Napoleonic Wars, not without some political turbulence. Shortfalls in public finances necessitated the reintroduction of the tax in 1842 and its extension to Ireland in 1853, but successive governments once again insisted that the tax was

27 Vestey v IRC (No 2) [1980] AC 1148, 1195 (per Lord Edmund Davies); see also the same case in the High Court: Vestey v IRC (No 2) [1979] Ch 198, 203 (per Walton J). 28 There are sometimes tensions with the recognition that the ‘collection and management’ of tax liabilities (Commissioners of Revenue and Customs Act (‘CRCA’) 2005, s 5) has to be carried out with limited resources and that decisions have to be made on how to prioritise resources. This tension comes to a head when these decisions appear – or are alleged – to have preferential consequences for some taxpayers: see R v IRC ex p National Federation of Self Employed and Small Businesses Ltd [1982] AC 617; UK Uncut Legal Action v HMRC [2013] EWHC 1283 (Admin); D de Cogan, ‘CIR v National Federation of Self-Employed and Small Businesses (1981): All Grievances Converging on Tax Law’ in J Snape and D de Cogan (eds), Landmark Cases in Revenue Law (Oxford, Hart Publishing, 2019). 29 See eg Institute of Fiscal Studies Tax Law Review Committee, Making Tax Law, TLRC Discussion Paper No. 3, March 2003, available at www.ifs.org.uk/comms/budd03.pdf. 30 M Daunton, Trusting Leviathan: The Politics of Taxation in Britain, 1799–1914 (Cambridge, Cambridge University Press, 2007) ch 2.

Tax Debates 71 only temporary and would eventually be repealed.31 This time, these promises were not fulfilled and the income tax has continued in force ever since. Yet in a formal sense the tax retains its temporary character and must be reintroduced by Parliament each year in order to prevent it from lapsing, thus entailing an annual Budget speech and Finance Act. Secondly, as we have seen elsewhere with regard to Lloyd George’s People’s Budget of 1909,32 the possibility of Parliament withholding its consent is more than merely theoretical. The risk of a Finance Bill being rejected by the House of Lords was removed by the Parliament Act 1911 but rejection by the Commons is still possible and has traditionally been treated as a confidence matter. In other words, the defeat of a Finance Bill would demonstrate that the government could not command a majority of MPs and that the Leader of the Opposition should be approached to form a government, failing which a general election should be held. The Fixed Term Parliaments Act 2011 has imposed new procedural requirements on the holding of early elections but these are highly likely to be met in the event that a Finance Bill is rejected.33 Thirdly, these tensions between Parliament and the government are also reflected in the public-facing and theatrical nature of proceedings, encapsulated by the parading of the Chancellor’s ‘red box’ in front of the official residence in 11 Downing Street. On the one hand this signals the seriousness that the government brings to the securing of MPs’ support to its fiscal plans. On the other hand, it tends to encourage extreme secrecy in advance of the ‘big reveal’ in the Chancellor’s speech to Parliament, further narrowing the opportunity for detailed engagement by MPs. As we shall see, there have been real moves towards greater transparency in recent years, but the element of surprise remains useful for governments wishing to retain the initiative in the face of well-prepared Opposition attacks on pre-published material.34 The situation of the Budget process, at the intersection between Parliament’s ability to hold governments to account and the ability of those governments to consolidate and project power, raises questions of general importance to this book. For instance, does this factor help to explain, if not to justify, the seeming inability of legislators to examine and challenge draft legislation more intensively? These matters recur below, but first it is useful to review in more detail the Parliamentary processes for enacting tax law, the activities of the relevant Commons committees and the role of the House of Lords.

31 ibid, ch 3. 32 Refer to this volume, 11. 33 See Fixed Term Parliaments Act 2011, s 2, which provides that early elections may only be arranged if two thirds of MPs agree or if a motion of no confidence in the government is passed. In most circumstances this will produce the same result as the pre-2011 position, on the basis that MPs are unlikely to support a government in a confidence motion immediately after rejecting its Finance Bill. 34 Not to mention the need to prevent taxpayers from ‘forestalling’ anti-avoidance legislation by rushing through tax avoidance schemes in advance of the enactment of the Finance Act.

72 Reform and Scrutiny of Tax Policymaking

ii. The Parliamentary Process The Chancellor’s Budget speech traditionally marked the beginning of the Parliamentary process for the enactment of the annual Finance Bill. Whilst this had certain political and other advantages, noted above, it dramatically curtailed the time available for legislators to scrutinise the government’s plans. The Conservative-Liberal Democrat coalition government significantly improved this position by promising to publish substantial parts of the draft Finance Bill several months in advance.35 The aim of this was to demonstrate commitment to transparency, to gain the benefit of external advice and – one presumes – to protect the Liberal Democrats from being ambushed by a Conservative Chancellor on the set-piece political occasion of the Budget. The practice has survived the change to Conservative governments in 2015 and 2017, though at the time of writing the exact status of the 2019 and 2020 Budgets remains uncertain as a result of the general election of December 2019. Immediately after the Budget speech, the House of Commons passes a Provisional Collection of Taxes Motion in order to provide immediate authorisation to the administration of taxes pending the final enactment of the Finance Bill.36 Within 10 sitting days, this must be followed by ‘Ways and Means Resolutions’ whereby the House of Commons approves the renewal of annual taxes such as income tax and, where necessary, the variation of any tax.37 These resolutions are followed by four days of Parliamentary debate, covering a wide range of topics relating to the management of the economy and typically not leaving time for in-depth discussion of more than a few detailed tax matters.38 The authority given by the Provisional Collection of Taxes Act expires after 30 days unless the Finance Bill is given a second reading in the House of Commons,39 and after seven months in any case,40 by which time the Finance Act is expected to have been enacted. Following the second reading, the Bill is examined in Committee, with a few important clauses selected to be heard in the Commons chamber in Committee of the Whole House and the remainder considered by Public Bill Committee. The standard of discussion in the latter has been criticised as ‘desultory’,41 in particular because there is no provision for oral evidence before the Committee considers the Bill line-by-line, ‘despite this being the “default position” for other public bills 35 HM Treasury and HM Revenue & Customs, Tax Consultation Framework (March 2011), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 89261/tax-consultation-framework.pdf, 4. 36 A Seely, ‘The Budget and the annual Finance Bill’, House of Commons Library Briefing Paper no. 813, 5 November 2018, available at https://researchbriefings.parliament.uk/ResearchBriefing/Summary/ SN00813, 4; Provisional Collection of Taxes Act (‘PCTA’) 1968. 37 HC SO no 51; PCTA 1968, ss 1, 3, 5. 38 Seely, above n 36, 5. 39 PCTA 1968, s 1(4). The Act clarifies that this means days on which the House sits, not calendar days. 40 PCTA 1968, s 1(3). 41 Institute for Government, Better Budgets; Making tax policy better, January 2017, available at www.instituteforgovernment.org.uk/sites/default/files/publications/Better_Budgets_report_WEB.pdf, 34.

Tax Debates 73 introduced in the House of Commons’.42 After Committee stage, the Finance Bill passes back to the House for Report stage and third reading. It then moves to the Lords, who have an opportunity to debate Bill but have no effective power to amend or reject it,43 and in turn to the Monarch for Royal Assent. The time and resource constraints on legislative scrutiny are exacerbated by the heavy bias in tax law towards the use of finely detailed primary legislation.44 This has, in part, been encouraged by the emphasis placed by generations of judges and commentators on the need for unambiguous statutory authorisation of tax liabilities.45 The consequence is that Finance Bills tend to be extremely long and detailed,46 certainly containing more material than could be scrutinised carefully within the available Parliamentary time. An old way of trying to manage this problem was to draw a distinction between annual Finance Acts, which would reimpose the income tax and perform other urgent functions, and Revenue Acts, which would contain other provisions and could be debated at more leisure.47 This collapsed by the early 1920s after the failure of a number of Revenue Bills.48 We now turn to the question of whether a new method of relieving the time pressure on Parliament might be found in the Commons Select Committee system.

iii. Commons Committees Although the committee processes mentioned above are the only ones that are a compulsory part of the Finance Bill process, certain Commons Select Committees have taken an interest in tax matters. The most obvious of these is the Treasury Committee, the remit of which is as follows: The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration and policy of HM Treasury, HM Revenue & Customs, and associated public bodies, including the Bank of England and the Financial Conduct Authority.49 42 ibid, 35. 43 Parliament Act 1911, s 1(1). 44 Some administrative provisions are contained within secondary legislation, yet many appear within Schedules to Acts of Parliament. The best-known regime to be contained entirely within secondary legislation is probably the Pay As You Earn (PAYE) system for the deduction of tax liabilities from employment income. 45 It is possible to proliferate examples but the classic statement of principle is in Partington v AG (1869) LR 4 HL 100, 122: ‘if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be’. See also the more balanced presentation of the same point by Rowlatt J in Cape Brandy Syndicate v IRC [1921] 1 KB 64, 71 as well as the discussion of alternative interpretative traditions in H Monroe, Intolerable Inquisition? Reflections on the Law of Tax (London, Stevens, 1981). 46 See C Turnbull Hall and R Thomas, Length of Tax Legislation as a Measure of Complexity (Office of Tax Simplification, April 2012), available at https://assets.publishing.service.gov.uk/government/ uploads/system/uploads/attachment_data/file/193496/ots_length_legislation_paper.pdf. 47 See generally J Pearce, ‘The Rise of the Finance Act: 1853–1922’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 7 (Oxford, Hart Publishing, 2015). 48 ibid, 104. 49 Treasury Committee, ‘Role – Treasury Committee’, available at www.parliament.uk/business/ committees/committees-a-z/commons-select/treasury-committee/role/.

74 Reform and Scrutiny of Tax Policymaking It is clear from this summary that tax policy is within scope, and indeed one of the Committee’s recent enquiries concerns ‘Tax enquiries and resolution of tax disputes’.50 It is equally clear that tax only forms a small part of the Committee’s remit. A letter from the Chairman to the government, quoted in the influential report of 2011, Principles of Tax Policy,51 urges closer pre-legislative scrutiny of tax policy and explains how the Committee might play a greater role if given an opportunity within the Parliamentary timetable. The same report, however, notes that ‘this Committee … is not equipped for a comprehensive role in the legislative process, nor are there precedents for a departmental select committee playing such a regular role’.52 This view is echoed by the Institute for Government, who note that the Committee gives regular attention to fiscal events but tends to concentrate ‘mainly on the big fiscal judgements and less on the policy detail’.53 A more controversial contribution has been made by the Public Accounts Committee (PAC), particularly with Margaret Hodge as Chair. This body, which is supported by the detailed research of the National Audit Office (NAO) and its Chair, the Comptroller and Auditor General: scrutinises the value for money – the economy, efficiency and effectiveness – of public spending and generally holds the government and its civil servants to account for the delivery of public services.54

Although some commentators draw a strict separation between the raising and expenditure of public revenues,55 this is not the approach of the PAC, which instead emphasises the importance of efficient revenue administration to the provision of public services.56 This aspect of its role came into particular prominence following the financial crisis of 2007–8, when the Committee devoted a significant amount of time into examining allegations that HMRC was dealing with tax avoidance in a less-than-robust fashion and even allowing powerful taxpayers to capture parts of the administrative process.57 The PAC’s activities are particularly interesting in the context of this book, as they may provide an example of the tendency, identified in chapter one, for wider crises to be channelled into arguments about tax.58

50 Treasury Committee, Oral evidence: Tax enquiries and resolution of tax disputes (HC 2017–19, 1914). 51 Treasury Committee, Principles of Tax Policy (HC 2010–11, 753). 52 ibid, 27. 53 Institute for Government, above n 41, 35. 54 Committee of Public Accounts, ‘Our role – Public Accounts Committee’, available at www. parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/ role/. 55 See discussion in J Snape and D de Cogan, ‘Introduction: on the Significance of Revenue Cases’ in Snape and de Cogan, above n 28, 3. 56 Committee of Public Accounts, ‘Taxation – a key area of focus’, available at www.parliament.uk/ business/committees/committees-a-z/commons-select/public-accounts-committee/taxation/. 57 See eg Committee of Public Accounts, HM Revenue & Customs 2010–11 Accounts: tax disputes (HC 2010–12, 1531). 58 Refer to this volume, 2.

Tax Debates 75 The PAC is still reporting on tax matters, though at a slower rate.59 In any case, its wide remit to examine the public finances leaves insufficient time or resources to perform regular and detailed scrutiny of draft tax legislation. For this reason, commentators tend to focus on other ways of strengthening Parliamentary scrutiny. This might be done by creating a new select committee on taxation60 or by creating an equivalent to the US Congressional Budget Office, the purpose of which is to provide non-partisan analysis to legislators in order that they can make their own decisions on a more informed basis.61 With the temporary exception of the Joint Committee on Tax Law Rewrite Bills, these institutional proposals have not yet been pursued.62 In the meantime, the control over taxation awarded to Parliament by the Bill of Rights 1688 seems to be exercisable in a decidedly big-picture manner. It is still capable of bringing down a government, but the potential for close Commons scrutiny of Finance Bills remains largely unrealised.

iv. House of Lords The next question is whether this conclusion should be modified to take account of the activities of the House of Lords. The starting position is that the Lords have very limited legislative powers with respect to taxation. The Parliament Act 1911 provides that ‘money bills’ may be presented to the monarch for Royal Assent with the consent of the Commons alone, so long as the Lords have been allowed the opportunity of a month in which to pass the Bill without amendment.63 The definition of ‘money bill’ is contained in section 1(2) of the Parliament Act 1911. Omitting for present purposes the references to other fiscal concerns such as borrowing and spending, the subsection provides as follows: A Money Bill means a Public Bill which in the opinion of the Speaker of the House of Commons contains only provisions dealing with all or any of the following subjects, namely, the imposition, repeal, remission, alteration, or regulation of taxation … or subordinate matters incidental to those subjects or any of them.

This brief provision conceals a great deal of content. The first point to note is that the determination whether a Bill qualifies as a Money Bill is for the Speaker, not for the government nor primarily for the courts.64 Secondly, it is clear that 59 See Committee of Public Accounts, above n 56. 60 See eg the proposals for a Joint Committee of the two Houses in Institute of Fiscal Studies, above n 29, Ch 6; Tax Reform Commission, Tax Matters: Reforming the Tax System (‘Forsyth Commission’), October 2006, available at http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/19_10_06tax.pdf [9.3.2]. 61 See eg C John Wales and C Peter Wales, Structures, processes and governance in tax policy-making: an initial report, Oxford University Centre for Business Taxation, December 2012, available at http:// eureka.sbs.ox.ac.uk/7340/1/Structures%20and%20processes%20in%20tax%20policy%20making.pdf 96–98, 166. 62 Recent institutional reform has centred on the Office of Tax Simplification, which forms part of government rather than Parliament and is accordingly discussed below. 63 Parliament Act 1911, s 1(1). 64 For circumstances in which the courts might intervene to prevent the abuse of the Parliament Act procedures, see generally R (Jackson) v Attorney General [2005] UKHL 56, [2006] 1 AC 262.

76 Reform and Scrutiny of Tax Policymaking Finance Bills are capable of qualifying, which is not surprising given the origin of the Parliament Act in the disputes surrounding the People’s Budget.65 Thirdly, not all Finance Bills are in fact certified as Money Bills.66 Fourthly, ‘taxation’ does not include local taxation or national insurance contributions (NICs),67 despite the widely-observed similarity between taxes and NICs in the modern tax system.68 Fifthly, the closed list of topics in section 1(2) discourages the practice of ‘tacking’ other, non-listed, provisions onto Money Bills in order to avoid scrutiny. The Parliament Act procedures sit on top of an older tradition of non-interference by the Lords in financial matters,69 which in Asquith’s and Lloyd-George’s view had been breached by the behaviour of the Conservative-dominated Lords in obstructing the 1909 Budget.70 From this perspective, the Parliament Act could be seen less as a revolution than an attempt to reassert previous constitutional practice, though an attempt which itself altered the balance between the two Houses. In any case, the notion of ‘Commons financial privilege’ survives and provides legislation with ‘financial implications’ with varying degrees of protection from Lords amendment.71 The scope of this privilege appears to be much wider than that of the Money Bill procedure and may encompass uncertified Finance Bills as well as provisions relating to local taxation, NICs and some items of public expenditure.72 In this light, what is the purpose of Lords scrutiny of tax legislation? One view is that the Bill of Rights 1688 and Parliament Act 1911 have placed control of taxation unequivocally in the hands of MPs. The Lords ought to respect this settlement and any attempt to recover lost influence by increasing their scrutiny of Finance Bills should be viewed either with suspicion or as a waste of time.73 An alternative view is that the rules and conventions restricting Lords amendments of tax

65 Refer to this volume, 11. 66 Select Committee on the Constitution, Money Bills and Commons Financial Privilege (HL 2010–11, 97) 5. 67 See Joint Committee on Conventions, Conventions of the UK Parliament (2005–06, HL 265-I, HC 1212-I) 66; Peter Allen, Hard choices for national insurance – where are we now?, ICAEW, 2016, available at www.icaew.com/-/media/corporate/files/technical/tax/hard-choices-for-national-insurance--where-are-we-now.ashx?la=en, 4. 68 Office of Tax Simplification, The closer alignment of income tax and national insurance: a further review (Cm. 9354, 2016–17). 69 E Wicks, The Evolution of a Constitution: Eight Key Moments in British Constitutional History (Oxford, Hart Publishing, 2006) 87–88. 70 ibid, 87; M Daunton, ‘Thomas Gibson Bowles v Bank of England (1913): A Modern John Hampden?’ in Snape and de Cogan, above n 28, 104. 71 Select Committee on the Constitution, above n 66, 8–11. For more detail, see Erskine May: Parliamentary Practice, 25th edn (London, Lexis Nexis Butterworths, 2019) ch 37. 72 Select Committee on the Constitution, above n 66, 9; J King, ‘Welfare Reform and the Financial Privilege’, UK Constitutional Law Blog, 3 February 2012, available at https://ukconstitutionallaw. org/2012/02/03/jeff-king-welfare-reform-and-the-financial-privilege/, including the author’s replies to comments; Erskine May, ibid, [37.7]. 73 There is a sense of the former in J Snape, The Political Economy of Corporation Tax (Oxford, Hart Publishing, 2011) 150–52.

Tax Debates 77 legislation provide exactly the space that is needed for experienced and knowledgeable members of the Lords to scrutinise Finance Bills without posing any threat to the government’s legislative programme. The constitutional weakness of the House of Lords, on this view, is its strength. This possibility was put into practice in 2003, when the House of Lords Committee on Economic Affairs established a sub-committee to examine the Finance Bill.74 This sub-committee has reported on the draft Finance Bills ever since and its ‘inquiries focus on technical issues of tax administration, clarification and simplification rather than on rates or incidence of tax’.75 As might be expected, the sub-committee has been criticised simultaneously for intruding into Commons privileges76 and for low implementation rates of its recommendations.77 Nevertheless, the generally technical and politically unprovocative approach of the sub-committee addresses a serious gap in Commons scrutiny,78 and its continuing work on Finance Bills no longer seems to attract significant controversy. More selfishly, it creates a new and potentially fruitful interface between Parliament and academia, in spite of – or perhaps because of – its relative remoteness from the real decision-making processes.

B. Government As noted already, Parliament’s formal control of taxation under Article 4 of the Bill of Rights conceals the substantive dominance of the government, bolstered by comfortable Parliamentary majorities through much of the twentieth century and by the clarification of the Lords’ power by the Parliament Act 1911.79 It is therefore worth examining the processes within the government for the scrutiny and reform of tax policy.

74 J Whiting, ‘The House of Lords meets the Finance Bill’ [2003] BTR 325. 75 Economic Affairs Committee, ‘Economic Affairs Finance Bill Sub-Committee – role’, available at www.parliament.uk/business/committees/committees-a-z/lords-select/economic-affairs-financebill-sub-committee/role/. 76 See J Alt, I Preston and L Sibieta, ‘The political economy of tax policy’ in Institute of Fiscal Studies, Dimensions of Tax Design: the Mirrlees Review (Oxford, Oxford University Press, 2010) 1291 (Commentary by Peter Riddell); Joint Committee on Conventions, above n 67, 64–66. 77 This view is reported in Whiting, above n 74, 328–29; A Plager, ‘Lords A’Leaping’ (2004) 3968 Taxation 459. 78 See eg M Truman, ‘Wrong way’ (2006) 4064 Taxation 343. 79 It is also worth reflecting that tax policy embraces both sides of the famous distinction made by Daintith between the imperium and dominium of government, the former evoking a command and the latter the sharing of largesse: T Daintith, ‘The Techniques of Government’ in J Jowell and D Oliver (eds), The Changing Constitution, 3rd edn (Oxford, Clarendon Press, 1994). On the one hand, refusing to pay tax that is due can be a criminal offence. On the other hand, tax rules and rates can be manipulated to have distributional consequences: see eg M Burton and K Sadiq, Tax Expenditure Management: A Critical Assessment (Cambridge, Cambridge University Press, 2013).

78 Reform and Scrutiny of Tax Policymaking

i. HM Treasury and HM Revenue & Customs Owing to the complexity of tax, the overwhelming majority of the detailed work on policy formation and development is carried out within HMT and HMRC, although some of the underlying ideas may occasionally gain their impetus from elsewhere in government. A point of particular delicacy is the relationship between these two institutions. At the most basic level, HMT is the government department with responsibility for the economy, headed by the Chancellor of the Exchequer: HM Treasury is the government’s economic and finance ministry, maintaining control over public spending, setting the direction of the UK’s economic policy and working to achieve strong and sustainable economic growth.80

HMRC is the department responsible for the ‘collection and management’ of tax liabilities:81 We are the UK’s tax, payments and customs authority, and we have a vital purpose: we collect the money that pays for the UK’s public services and help families and individuals with targeted financial support.82

These tasks, although central to the functioning of the state, also intersect intimately with the lives, property and businesses of taxpayers. In order to insulate day-to-day administration from undue political pressure, HMRC is a non-ministerial department headed by civil servants, although it must comply with general directions from HMT.83 This structure makes intuitive sense but creates certain challenges, foremost of which is the division of responsibility for policymaking. The stereotype is that the tax authorities, now combined into HMRC, can draw on strong technical knowledge but tend to lack oversight of the consequences of their policy decisions for the economy as a whole. HMT, it is said, recruits brilliant young analysts who sometimes lack the experience to judge the practical consequences of their policy decisions. As with any stereotype, there are elements here of truth and exaggeration, but there has certainly been a protracted discussion on how best to balance economic rationality with administrability in tax policy, and fresh ideas with experience. A watershed in this discussion was the decision in 2004 to merge the old tax departments, the Inland Revenue and HM Customs & Excise, into the new combined HMRC, and simultaneously to establish primary responsibility for policymaking in HMT. This was done by drawing a distinction between ‘policy development’ and ‘policy maintenance’, to be allocated to HMT and HMRC respectively, and echoing the earlier ‘Thatcherite’ division of many public services between policy (retained within government) and delivery 80 HM Treasury, ‘About us’, available at www.gov.uk/government/organisations/hm-treasury/about. 81 CRCA 2005, s 5. 82 HM Revenue & Customs, ‘About us’, available at www.gov.uk/government/organisations/ hm-revenue-customs. 83 CRCA 2005, s 11; T Prosser, The Economic Constitution (Oxford, Oxford University Press, 2014) 91.

Tax Debates 79 (transferred to semi-independent executive agencies).84 A particular attraction of this arrangement was to transform technical expertise from a brake on the ambitious, big-picture reforms to which the Blair governments were committed, into a potential resource. In the event, the policy partnership between HMT and HMRC has not gone exactly to plan.85 On the one hand, the downgrading of technical expertise and experience at the policy formation stage has been particularly keenly felt.86 In consequence, HMRC has resumed a rather more prominent role in the policymaking process than was initially envisaged in the 2004 reforms, and greater emphasis has also been placed on external expertise, as is discussed briefly below. On the other hand, hopes that an enhanced role for HMT would increase the openness of government to radical tax reforms, rooted in economic principles, has been shaken by the lack of progress in implementing the Mirrlees Review. Nevertheless, there has some change in emphasis in how tax reform is done. In line with the closer engagement with external expertise, the government has introduced what are known as ‘road maps’. These are not designed applications of economic theory in the style of Mirrlees. Instead they set out relatively clear, though non-binding, expectations of how particular areas of tax policy are likely to develop over a period of several years. This practice has encouraged a degree of stability and predictability in policymaking and there has been significant demand for it to be extended from ‘corporate tax’ and ‘business tax’ into other areas of policy.87 The roadmaps are consistent with a broader shift away from the approach of the previous decade, in which the Tax Law Rewrite project prioritised the comprehensibility not of tax policy but of legislative drafting.88 A particular challenge is how to ensure accountability to Parliament for questions of tax policy and administration.89 Naturally, Parliament can hold the Chancellor and Treasury Ministers politically accountable for the policies

84 G O’Donnell, Financing Britain’s Future: Review of the Revenue Departments (Cm 6163, 2003–04) 1, reviewed in P Tuck, D de Cogan and J Snape, ‘A tale of the merger between the Inland Revenue and HM Customs & Excise’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 9 (Oxford, Hart Publishing, 2019) 230. 85 See eg C Wales, ‘The Implications of the O’Donnell Review for the making of Tax policy in the UK’ [2004] BTR 543; C Wales, ‘The Making of Tax Policy in the Post-O’Donnell World: Can the HMT-HMRC “Policy Partnership” meet the challenge?’ [2009] BTR 245. 86 See eg T Bowler, Tax Policymaking in the UK, TLRC Discussion Paper No. 8, June 2010, available at www.ifs.org.uk/comms/dp8.pdf, cited in Prosser, above n 83, 92–93. 87 HM Treasury and D Gauke, The corporate tax road map (Policy paper, November 2010), available at www.gov.uk/government/publications/the-corporation-tax-road-map; HM Treasury and D Gauke, Business tax road map (Policy paper, March 2016), available at www.gov.uk/government/publications/business-tax-road-map; Office of Tax Simplification, Savings income: routes to simplification, May 2018, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/711110/OTS_savings_paper_May_18.pdf, 21. 88 This shift from language to substance is also reflected in the establishment of the Office of Tax Simplification, which is discussed in more detail below. 89 Increased accountability being a key supporting argument for the rearrangement of policy functions in 2004–05: see O’Donnell, above n 84, ch 6.

80 Reform and Scrutiny of Tax Policymaking and conduct of HMT. However, things are less clear when MPs wish to enquire about matters within the remit of HMRC. It is not possible to ask the responsible Minister, given that HMRC is a non-ministerial Department. In other areas of government where a division is recognised between policy and delivery, accountability to Parliament is arranged as follows: 5.3 Heads of departments and the chief executives of executive agencies are appointed as Accounting Officers. This is a personal responsibility for the propriety and regularity of the public finances for which he or she is responsible; for keeping proper accounts; for the avoidance of waste and extravagance; and for the efficient and effective use of resources. Accounting Officers answer personally to the Committee of Public Accounts on these matters, within the framework of Ministerial accountability to Parliament for the policies, actions and conduct of their departments.90

Predictably, there have been some high-profile disputes regarding the precise allocation of responsibility between Ministers and civil servants, of which some have become rather notorious examples of how Ministers might seek to evade responsibility.91 Further complexities are raised in the tax field, though, because of the imperfect division of policymaking functions between HMT and HMRC. There appears at first to be a gap in responsibility for policy questions that would ordinarily be outside the remit of an Accounting Officer of an executive agency, but which are in fact governed by HMRC rather than HMT under the supervision of the Chancellor. This apparent lacuna is alleviated by various factors, including the accountability of the Chancellor for any aspect of policy that ends up in a Finance Bill,92 the accountability of the Accounting Officer of HMRC for administrative matters and the availability of judicial review against the tax authorities.93 Nevertheless, serious difficulties do occasionally arise, most notoriously in 2011 when the PAC investigated allegations that HMRC had been allowing systemically important taxpayers to settle for less than the full amount of tax at stake. The PAC spoke to the relevant Accounting Officer, Dave Hartnett, but also to the General Counsel and Solicitor of HMRC, Anthony Inglese. A particular issue arose in respect of a meeting held by HMRC on 8 December 2010.94 The view expressed on behalf of the PAC was that the contents of this meeting should be disclosed in view of the accountability of civil servants to Parliament.95 Inglese’s position was that he was being asked to divulge advice subject to legal professional

90 Cabinet Office, Ministerial Code (January 2018), available at https://assets.publishing.service.gov. uk/government/uploads/system/uploads/attachment_data/file/672633/2018-01-08_MINISTERIAL_ CODE_JANUARY_2018__FINAL___3_.pdf. 91 See eg R Scott, ‘Ministerial accountability’ [1996] Public Law 410. 92 As attested by the volumes of Inland Revenue advice contained within the Centre for Tax Law in Cambridge, the tax authorities have traditionally provided very detailed guidance on draft Finance bills. 93 See R v IRC ex p National Federation of Self Employed and Small Businesses Ltd [1982] AC 617. 94 Committee of Public Accounts, above n 57, Ev 88. 95 ibid, Ev 39.

Tax Debates 81 privilege and that in any case HMRC’s actions were the subject of an imminent application for judicial review.96 This compounded with Hartnett’s concern not to breach taxpayer confidentiality when providing information to the PAC.97 It is easy to see both sides of this argument. On the one hand, HMRC is at arms’ length from Ministers precisely to protect taxpayers from political pressure, which was particularly salient in the present case as one of the taxpayers (Goldman Sachs) had in fact been identified publicly. On the other hand, there is force in the question asked by Margaret Hodge about the duty of civil servants in the tax field: ‘Is it to protect taxpayer confidentiality, or to protect the public interest in ensuring that moneys are due to the Exchequer?’98 The PAC’s response to this conundrum was to take the highly unusual step of asking Inglese to give evidence on oath. In Richard Bacon MP’s words, ‘we are doing so because we have not been able to get answers otherwise’.99 This impatience is understandable, but it is doubtful whether the best way of holding a non-Ministerial Department to account for decisions with policy significance is to place this degree of political pressure on a legal official who is neither a Minister nor an Accounting Officer. The PAC’s methods were particularly questionable given that the details of HMRC’s conduct seem to have been secondary to a wider political campaign to raise the profile of avoidance issues.100 The narrow question of the Goldman Sachs and other settlements was ultimately resolved not through Inglese,101 but by tasking a retired judge (Sir Andrew Park) and the National Audit Office to examine HMRC’s settlements under agreed parameters of confidentiality.102 This was a reasonable, pragmatic and constitutionally unproblematic solution that made use of the NAO’s power to ‘carry out examinations into the economy, efficiency and effectiveness with which any department … has

96 ibid, Ev 40. 97 ibid eg Ev 3, Ev 65–67. 98 ibid, Ev 53. For the reasons explored in more detail in ch 4, this engages an irresolvable tension underlying tax law and was accordingly a fundamentally unfair – though insightful – question. More to the point is Mba’s exploration of the proper scope of taxpayer confidentiality and the question: O Mba, ‘Transparency and accountability of tax administration in the UK: the nature and scope of taxpayer confidentiality’ [2012] BTR 187–225. 99 ibid, Ev 44. 100 Margaret Hodge described the events as ‘fantastic theatre. It was very funny … It took them 20 minutes to find a Bible … We used drama for a purpose, it wasn’t just grandstanding – it put that whole tax avoidance and evasion and financial crime right on the agenda. If I hadn’t done that I wouldn’t have had whistleblowers coming to see me. It started the whole journey on exposing tax avoidance. I know it has had a lasting impact.’ See R Vize, ‘Trial by committee: How appearances before select committees affect the careers of top officials’, Civil Service World, 25 June 2019, available at www.civilserviceworld. com/articles/feature/trial-committee-how-appearances-select-committees-affect-careers-top-officials. 101 As Gardner notes, ‘the committee did not in the end get him to answer anything that was legally privileged. Once the oath was taken, strangely they seemed to ease up on him, gave him more space to answer, and apparently became more satisfied.’ See C Gardner, ‘Anthony Inglese and the PAC’, Head of Legal, 10 November 2011, available at www.headoflegal.com/2011/11/10/anthony-inglese-and-the-pac/. 102 National Audit Office (NAO) in Settling large tax disputes: report of the Comptroller and Auditor General (HC 2012–13, 188).

82 Reform and Scrutiny of Tax Policymaking used its resources in discharging its functions’103 as well as its statutory powers to request information whether confidential or not.104

ii. Consultation In order to enhance both the quality and the likely acceptance of tax policy, it might be desirable for the government to invite scrutiny not only from Parliamentarians but also taxpayers, representative organisations and other expert and interested parties. A principled rationale for this might be found in the recommendations of regulatory theorists that a strongly coercive approach to the small hard-core of recalcitrant taxpayers should be balanced with a cooperative attitude to the much larger body of taxpayers who are inclined to be compliant.105 The emphasis of these theories is on administration rather than policy development, yet it is consistent with the same insight that policymakers ought to seek advice and scrutiny from well-informed voices from outside Westminster. Nevertheless, the preceding discussion of the settlements controversy provides a warning of the possible risks involved in allowing taxpayers to influence the systems within which their liabilities are calculated. This tension between the benefits and risks of consultation is by no means new, but on the contrary has left architectural imprints on the UK tax system. In the eighteenth century, for example, excise officials gained a strong reputation for competence and incorruptibility,106 reinforced by practices such as staff rotation around different parts of the country ‘to prevent excessive fraternization or even collusion between officers and the traders they assessed and gauged’.107 Partly because of this reputation, excise duties proliferated in the eighteenth century.108 Although they have since been eclipsed by newer innovations such as the income tax and the VAT, something of the same hardline reputation survived into the new department of Customs & Excise in 1909 and into the merged HMRC in 2005.109 The income tax, by contrast, was largely administered by laymen, with perhaps a degree of revenue loss tolerated in return for the acceptance of what was

103 National Audit Act 1983, s 6(1), cited in Committee of Public Accounts, above n 57, Ev 79 (written evidence of Osita Mba). 104 National Audit Act 1983, s 8; Committee of Public Accounts, above n 57, Ev 66 (written evidence of Dave Hartnett). 105 See eg I Ayres and J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford, Oxford University Press, 1992) and discussion in J Freedman, ‘Responsive Regulation, Risk and Rules: Applying the Theory to Tax Practice’ (2011) 44(3) University of British Columbia Law Review 627; OECD, Co-operative Compliance: A Framework From Enhanced Relationship to Co-operative Compliance (Paris, OECD Publishing, 2013). 106 See J Brewer, The Sinews of Power: War, Money and the English State, 1688–1783 (London, Unwin Hyman, 1989) 101–14. 107 ibid, 110. 108 ibid, 214–16. 109 See eg Tuck, de Cogan and Snape, above n 84, 236 (section entitled ‘culture’).

Tax Debates 83 initially a very unpopular imposition.110 Similar questions surround the practice of ‘hypothecation’ or the dedication of revenues from certain taxes to particular public spending projects. This may help to build popular support for taxation by associating tax increases with particular widely-desired outcomes,111 but may also create interest groups that are likely to outlast their usefulness. Daunton reports that despite some earlier use of hypothecation, by the mid-nineteenth century ‘[t]he ban on hypothecation was high on the list of the Treasury’s constitutional principles for the fiscal system’.112 In the light of these observations, the criticism that tax policy is insufficiently permeable to external input should not necessarily be treated as a neutral observation, but rather an opinion contributed to a long-running argument that has no obvious correct answer. Nevertheless, two conflicting trends in the early 2000s have combined to produce a modest but noticeable shift in the UK’s approach to tax consultation. The first is the sense that some aspects of the tax system, compounded by economic globalisation and the upheaval of the transfer of policy responsibilities to HMT, have become so complicated that the government can no longer regulate them effectively without external assistance.113 The second is the concern, exemplified by the settlements controversy discussed above, that large taxpayers have gained an undue degree of influence over tax policymaking and administration. Shortly after the election of 2010, the new government responded to these trends by publishing Tax Policy Making: a New Approach,114 which proposed a more structured approach to consultation. This was followed in early 2011 with the Tax Consultation Framework,115 which described a five-stage model of policymaking:116 1. Setting out objectives and identifying options. 2. Determining the best option and developing a framework for implementation including detailed policy design. 3. Drafting legislation to effect the proposed change.

110 In some contexts this seems to have been taken to extremes: see K Cousins, ‘The Failure of the First Income Tax: A Tale of Commercial Tax Evaders?’ (2018) 39(2) Journal of Legal History 157–86. 111 See Common Vision (CoVi), Follow the money: Is the time right for (more) tax hypothecation?, September 2018, available at www.covi.org.uk/responsible-tax-lab/, 14. 112 M Daunton, ‘Taxation, War, and Good Government in Britain, 1688–1914’ in SH Steinmo, The Leap of Faith: The Fiscal Foundations of Successful Government in Europe and America (Oxford, Oxford University Press, 2018) 144. 113 The Controlled Foreign Companies (CFC) rules might be an example of this: see Snape and de Cogan, above n 28, 18, citing R Brooks, The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business (London, Oneworld, 2013) ch 4. 114 HM Treasury and HM Revenue & Customs, Tax Policy Making: a New Approach (June 2010), available at https://webarchive.nationalarchives.gov.uk/20130102201052/http:/www.hm-treasury.gov.uk/d/ junebudget_tax_policy_making.pdf. 115 HM Treasury and HM Revenue & Customs, Tax Consultation Framework (March 2011), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 89261/tax-consultation-framework.pdf. 116 ibid, 2.

84 Reform and Scrutiny of Tax Policymaking 4. 5.

Implementing and monitoring the change. Reviewing and evaluating the change.

The government committed to engage interested parties at each stage where possible; to explain the scope and nature of each consultative exercise; to include at least one formal, written consultation for significant reforms; and to maximise the transparency of confidential and informal discussions.117 The hope underlying these initiatives was clearly that the government could gain from external input, increasing the quality and likely acceptance of new legislation, whilst minimising the risks of regulatory capture and reduced transparency. Predictably, the new principles of policymaking have not always prevailed over the urgent demands and temptations of government. However, they have gained a certain longevity from what might initially have seemed a peripheral feature of the New Approach, that is, the claim that it would support enhanced Parliamentary scrutiny.118 This point has been taken up with enthusiasm by the House of Lords Finance Bill Sub-Committee, the members of which have developed their investigation into the annual Finance Bill into themed reports dealing with particular aspects of policy. The report on the Finance Bill 2017 focussed on plans to digitise tax administration, whereas the 2018 report examines the powers of HMRC and the fair treatment of taxpayers. In any case, the Sub-Committee reports have consistently included a section detailing the implementation of the New Approach, in particular pointing out instances in which the government has departed from the usual procedures and evaluating the stated reasons for doing so. This seems a rather effective way to deploy the limited influence of a committee that enjoys significant expertise yet has no hard powers with which to enforce its recommendations. These developments are welcome, yet there are continuing doubts about the practice and even the principle of involving taxpayers in the development of tax policy. One strand of thought is that tax policy can become captured by repeat players whose expertise, persistence or economic importance gives them an outsized influence both in formal consultations and in tax professional and policy networks. This need not be a cynical matter of prioritising private concerns over the public interest but may simply reflect the extreme complexity of some tax problems and the limited numbers of people who thoroughly understand them.119 In some particularly technical areas, even the language used by policymakers and the drafters of legislation may be accessible only to a few deep experts, making it difficult for anyone else to make an appreciable difference even in consultation processes that are ostensibly open and transparent. To some extent the ability of non-specialists to contribute may be enhanced by avoiding excessively technical

117 ibid, 2–4. 118 HMT and HMRC, above n 113, ch 3. 119 These possibilities are reviewed in D de Cogan, ‘A Changing Role for the Administrative Law of Taxation’, (2015) 24(2) Social & Legal Studies 251–70.

Tax Debates 85 language, but the formation of restricted ‘epistemic communities’120 may be almost unavoidable when tax intersects with industries such as insurance that are themselves highly complex, or with international law or cross-border regulation. These complexities have not prevented observations that there is a ‘revolving door’ between the tax authorities and professional advisory firms, and suggestions that this may privilege the clients of those firms at the expense of other taxpayers and the beneficiaries of state spending. In 2013 the Public Accounts Committee published a highly critical report on the practice of seconding staff from accounting firms to government in order to advise on policy, noting that those firms might then be able to exploit the rules that they had helped to establish.121 Some of the heat has dissipated from these controversies over recent years, whether because of the retirement of Margaret Hodge as chair of the PAC, increased caution and formality on the part of the government in seeking external help, and perhaps even the decreased salience of tax as other challenges to the UK present themselves. There is also an influential view within ‘tax justice’ communities that campaigners ought not to attack the premise of consultation but rather to insert themselves into the process and ensure that a wider range of voices are heard.122 Although the focus on this activity in recent years has been on attempts to influence the decision-making of international organisations such as the OECD,123 there is no reason why they cannot be replicated in national policymaking processes.

iii. Royal Commissions At important points in the past, reports have been commissioned by Parliament or Government on broad aspects of the tax system, such as the inconclusive Select Committee reports into the Income and Property Tax in 1852 and 1861, the Departmental Committee of 1905 that was established by the Inland Revenue, the Select Committee on Income Tax of 1906, the Royal Commission on Income Tax of 1920, the Income Tax Codification of 1936 and the Royal Commission on the Taxation of Profits and Income of 1955. These faced similar implementation challenges to any major studies of taxation, except that they enjoyed strong participation from the Inland Revenue. They had a corresponding emphasis on practicability and in some cases were quite resilient to piecemeal implementation across a number of Finance Acts. Curiously, one of the most famous consequences 120 There is a helpful review of the relevant literature in MK Davis Cross, ‘Rethinking epistemic communities twenty years later’ (2013) 39 Review of International Studies 137–60. 121 Committee of Public Accounts, Tax avoidance: the role of large accountancy firms (HC 2012–13, 870) 10. 122 This phenomenon is described in A Christians, ‘Tax Activists and the Global Movement for Development Through Transparency’ in M Stewart and Y Brauner (eds), Tax, Law and Development (Cheltenham, Edward Elgar, 2012). 123 See eg M Bou Mansour, ‘Addressing the tax challenges of the digitalisation of the economy: our submission to OECD consultation’, Tax Justice Network, 15 March 2019, available at www. taxjustice.net/2019/03/15/submission-to-oecd-consultation-on-addressing-the-tax-challenges-of-thedigitalisation-of-the-economy%e2%80%8b/. See also the OECD’s efforts to widen participation so

86 Reform and Scrutiny of Tax Policymaking of the 1950s Commission was the enactment of a capital gains tax in 1965, following the recommendations of Nicholas Káldor’s dissenting report.124 This combination of practical and theoretical expertise, backed by a certain amount of political will, makes reading the Royal Commissions a rather nostalgic exercise for a tax scholar and indeed there have been suggestions that a new one should be established in the twenty-first century.125 There is no indication at the time of writing that these proposals are likely to be acted upon.

iv. Office of Tax Simplification On 20 July 2010 the incoming Chancellor of the Exchequer George Osborne and the Exchequer Secretary David Gauke established the Office of Tax Simplification (‘OTS’) as a new ‘independent Office of the Treasury’.126 The OTS had been proposed by the Conservatives in opposition127 and reflected a frustration that the Tax Law Rewrite had simplified the language and expression of the legislation within its remit but had not been permitted to address the complexity of the substantive law. In terms of length the Rewrite had in fact increased the volume of legislation, for example by expressing concepts separately for income and corporation taxes that had previously been shared by the two taxes. The OTS, by contrast, is permitted to examine legal substance, though its ambition has been kept within bounds by limited resources, its primary function of advising the Chancellor and to some extent the need to produce at least some easily-implemented recommendations on a regular basis.128 These constraints contributed to a reputation for rather piecemeal examinations of particular areas of law, which themselves might not be fully implemented by the government. This came as something of a disappointment to those observers who had hoped for a more robust approach to reform, perhaps leading us by observable steps towards a rationally designed tax system if not necessarily delivering us directly to the desired destination. Nevertheless, the OTS can point to some successes, not only in the narrow sense of its recommendations being implemented, but more generally in bringing important tax reform topics to the attention of government even if the recommendations are not immediately enacted. Since 2010, the Office has also become more institutionally secure, gaining additional resources and being placed on a statutory footing by the Finance that the voices of non-member states, including developing countries, are heard: eg OECD, ‘About the Inclusive Framework on BEPS’, available at www.oecd.org/tax/beps/beps-about.htm. 124 Royal Commission on the Taxation of Profits and Income, Final Report (Cmd. 9474, 1955) 354. 125 See eg A Brassey, Tax, GAAR and the Rule of Law (PhD Thesis, University of Cambridge 2017) 204. 126 HM Treasury, Office of Tax Simplification, George Osborne and D Gauke, Office of Tax Simplification (Press release, 20 July 2010), available at www.gov.uk/government/news/office-of-tax-simplification. 127 See eg Forsyth Commission, above n 60, 112. 128 See also HM Treasury, HM Revenue & Customs and Office of Tax Simplification, Office of Tax Simplification Framework Document (May 2016), available at https://assets.publishing.service.gov. uk/government/uploads/system/uploads/attachment_data/file/522874/20160512_ots_draft_revised_ framework_document.pdf.

Tax Debates 87 Act 2016.129 It has also engaged in an increasingly sophisticated conversation on the nature and purpose of simplification, initially applying simple measures such as the length of legislation and the number of reliefs but later complementing these with attempts to improve the ‘user experience’ of ordinary taxpayers.130 A curious feature of the OTS is its relationship with the Law Commissions, in particular since early proposals for such a body suggested the name ‘Tax Law Commission’.131 The Law Commissions, like the OTS, address their reports primarily to government,132 but unlike the OTS are not attached to a government department. They are not barred from considering tax questions, but as noted above, the peculiarly concentrated combination of technicality and political sensitivity seems to have discouraged them from close involvement with the field. Indeed, even good ideas for tax reform are vulnerable to the sheer speed with which the potential ‘losers’ can be identified and then mobilised into politicised campaigns. This puts rather a premium on the peculiar skills of politicians in shaping policies, defending them against fair and unfair criticisms, maintaining the initiative and anticipating the tactics of opponents within and outside Parliament. The conundrum here is that what we expect from tax reformers is simultaneously a sense of perspective, suggesting a certain distance from government, and robustness to political confrontation, which suggests closeness to government. Whether the OTS strikes the right balance is still unclear, but the decision to establish the Office on a less independent basis than the Law Commissions is far from arbitrary.

C. Judiciary There are enormous amounts that could be said about the constitutional role of courts in shaping tax policy, particularly in relation to judicial review of the administration. For space reasons, however, the present discussion is restricted in the same manner as the chapter as a whole, to scrutiny of tax policy before the point of enactment. The most important point here is that the UK courts may not refuse to apply Acts of Parliament because of non-compliance with the constitution, let alone alleged defects in the process of enactment. If an Act of Parliament is genuine, courts must obey it. These types of arguments are familiar to lawyers from the case of British Railways Board v Pickin,133 but there is also an entertaining tax

129 Finance Act 2016, Part 12 and Schedule 25. 130 See eg Office of Tax Simplification, Annual Report 2017–18: Simplifying the tax system to make it easier for the taxpayer to use, July 2018, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/726398/OTS_Annual_Report_2017-18__web_. pdf. This may, of course, exacerbate tensions between reformers who hope to address underlying complexities of statutory expression, legal concepts, political ideas or economic incentives and those who would be content to hide such complexities behind a convenient user interface. 131 Forsyth Commission, above n 60, 112 132 Dyson, Lee and Stark, above n 15, 5. 133 British Railways Board v Pickin [1974] AC 765.

88 Reform and Scrutiny of Tax Policymaking case dealing with similar matters. In Martin v O’Sullivan,134 the claimant taxpayer contended that changes in the remuneration arrangements for MPs had disqualified them from acting as representatives in Parliament, with the result that the statutory provisions under dispute had not been properly enacted. This approach to the validity of law was described as ‘remarkable’135 and caused the courts more amusement than difficulty. Nevertheless, it would be premature to argue that the courts have no influence on the policy process. On the contrary, there have been important moments in history where judges have had a transformative influence simply by clarifying what the status quo is. One example, explored more fully elsewhere within this book,136 is the conduct of the courts following the introduction of income tax appeals in 1874 and in particular the imposition of statutory provisions that had previously been observed in the breach. Another example of the courts laying down the gauntlet to Parliament is the House of Lords case of CIR v Gartside,137 in which the court decided that the activities of the Gartside family in minimising their Estate Duty liabilities was an inevitable consequence of the structure of the tax rather than simply an exploitation of it. This encouraged Parliament, finally, to restructure the tax and to remove some of the key tax advantages of onshore discretionary trusts.138 A more recent example is the case of R(Wilkinson) v CIR,139 in which the House of Lords placed unexpectedly strict limits on the Inland Revenue’s practice of providing extra-statutory concessions (‘ESCs’) from liabilities that might otherwise have been due. This in turn prompted a whole programme of enacting ESCs into statute. In some cases, the courts have played an even more prominent role in the development of tax policy. In spite of the enormous accumulation of tax legislation, Parliament has not addressed all points of law with equal clarity. There have therefore been significant areas of tax doctrine in which the development of the law has been left largely to the courts. A particularly well-known example was the test for determining whether taxpayers were ‘resident’ in the UK for purposes of the income and corporation taxes. A statutory test for individual tax residence was finally introduced in the Finance Act 2013,140 but the tests for corporate tax residence are still governed by case law. A more complex example is the famous case of Ramsay v CIR,141 in which the House of Lords refused to provide a taxpayer with a tax advantage by applying the statutory rules discretely to each step of a circular

134 Martin v O’Sullivan [1984] STC 258. 135 ibid, 259. 136 Refer to this volume, 104. 137 CIR v Gartside [1968] AC 553. 138 See D de Cogan, ‘Gartside v IRC (1967): “This decision involved a small point”’ in B Sloan (ed), Landmark Cases in Succession Law (Oxford, Hart Publishing, 2019). 139 R (Wilkinson) v CIR [2005] UKHL 30, [2005] 1 WLR 1718. 140 Finance Act 2013, s 218 and Sch 45. 141 WT Ramsay v IRC [1982] AC 300.

Tax Debates 89 transaction. The court instead construed the facts as a single, composite, transaction in which almost no resources changed hands, with the result that the tax legislation produced neither a significant tax charge nor a significant tax advantage. This so-called Ramsay doctrine was once widely thought to be a judicially formulated rule of law,142 but since the case of Barclays Mercantile v Mawson143 is usually understood to be an application of the ordinary principles of purposive statutory interpretation in the tax context. The proper intensity of this interpretative role in the face of apparent tax avoidance schemes is still disputed.144 There is a further possibility, that the interpretative principles applied by the courts in the tax field could be regarded as exercises in constitutional elaboration, perhaps by analogy with ‘principles of good administration’ in public law.145 This idea has obvious application in the field of taxpayer rights and is revisited in chapter four,146 but its extension to more technical questions of tax law is more doubtful. In the conjoined cases of HMRC v William Grant and Small v Mars UK,147 for example, Lord Hoffmann rejected HMRC’s argument that the courts ought to displace the ordinary operation of accounting standards in favour of supposed fundamental principles.148 Once again, views differ on the robustness of Lord Hoffmann’s comments and their relevance to the wider development of principles by the courts. In any case, it would be stretching a point to say that the courts have had a major or routine influence on the formation of tax policy. Tax administration is another matter but is beyond the scope of this chapter.149

D. Outsiders It has already been seen that individuals and organisations outside the Westminster institutions can participate in formal consultation procedures. They may also have opportunities to give evidence to Parliamentary committees or to contribute towards the policy communities that surround the tax system. Even for wellconnected outsiders, however, there is nothing in the Tax Consultation Framework 142 Especially following the attempted formulation of a test by Lord Brightman in Furniss v Dawson [1984] AC 474, 527. 143 Barclays Mercantile Business Finance v Mawson [2004] UKHL 51, [2005] 1 AC 684. 144 See UBS v HMRC; DB Group Services (UK) v HMRC [2016] UKSC 13, [2016] 3 All ER 1 and RFC 2012 (in liquidation) (formerly Rangers Football Club) v Advocate General for Scotland [2017] UKSC 45, [2017] 4 All ER 654. 145 See E Simpson, ‘The Ramsay principle: a curious incident of judicial reticence?’ [2004] BTR 358; cf M Elliott, ‘The ultra vires doctrine in a constitutional setting: still the central principle of administrative law’ (1996) 58(1) CLJ 129–58. 146 Refer to this volume, 127. 147 HMRC v William Grant & Sons Distillers; Small v Mars UK [2007] UKHL 15, [2007] 2 All ER 440. 148 ibid, [15]. See also discussion in J Freedman, ‘Odeon Associated Theatres Ltd v Jones (HM Inspector of Taxes) (1971): A Delphic Pronouncement and a Fundamental Tension’ in Snape and de Cogan, above n 28. 149 Refer also to S Daly, Tax Authority Advice and The Public (Oxford, Hart Publishing, 2020) 38–41, 68–73, 105–112 and Ch 6.

90 Reform and Scrutiny of Tax Policymaking or elsewhere that requires the government to take any particular substantive action in response to the views of consultees, as opposed to merely taking them into account. An alternative option is for interested parties to engage in what is rather compendiously known as tax protest. This traditionally involved refusals to obey what were thought to be unjust tax impositions, such as the refusal of some members of the National Federation of Self-Employed (NFSE) to pay Class 4 National Insurance Contributions, which was marketed to members as the ‘first tax strike of recent memory’.150 Even more famous are the protests against Mrs Thatcher’s Community Charge, more commonly known as the ‘Poll Tax’, which ultimately contributed to the demise of her premiership. There has been a well-publicised shift from protests against perceived over-taxation to protests in favour of stricter enforcement at least for those businesses thought to be responsible for the 2007 financial crash.151 Short of overt protest, there is also a strong tradition of sabotaging reform by identifying the losers from tax policy and using pithy summaries such as ‘Granny Tax’, ‘Bedroom Tax’ and ‘Pasty tax’ to publicise the potential unfairness of proposed changes. Whilst there is little be gained by complaining about this tactic, it can be quite frustrating when simplistic claims that a government ‘hates’ a specific group forces the reversal of otherwise worthwhile tax reforms.152

III. Improving Reform and Scrutiny The brief review of tax reform and scrutiny just presented provides some grounds for optimism. The ‘new’ approach to consultation treads a reasonable mid-path between deafness to external advice and regulatory capture, even if it is sometimes honoured in the breach. The Office of Tax Simplification has also institutionalised a thoughtful if limited process of tax reform within the heart of government. Nevertheless, it is difficult to find a single commentator who believes that Parliament takes the scrutiny of tax legislation with the degree of seriousness that is merited by the subject-matter. The complication is that there is a profound lack of agreement on what Parliament ought to be achieving. Three possibilities are as follows. The first is that Parliament ought to repeal much of the existing patchwork of complex and often incoherent rules and to replace them with properly designed and rational schemes of taxation, perhaps by reference to

150 M Bettsworth, The Growth of a Business Pressure Group: Federation of Small Businesses 1974–1999 (Lytham St Annes: NFSE, 1999) 45–46, cited in de Cogan, above n 28, 253. 151 There is, however, an interesting symmetry with the NFSE’s application for judicial review against the Revenue, which aimed to curb tax evasion by Trades Union members. This in turn reflected the belief of NFSE members that Trade Unions shared responsibility for the problems of the late 1970s: see Cogan, above n 28. 152 Recent examples may include attempts to apply standard-rate VAT to some heated takeaway food (the ‘pasty tax’) and to pursue greater alignment of NICs on employed and self-employed individuals.

Improving Reform and Scrutiny 91 economic theory. These designed systems might be aimed exclusively at revenueraising or, like the Mirrlees Review, might tolerate the use of tax for redistribution, the correction of market failures or otherwise. A second view is that Parliament ought to underline the liberal democratic character of taxation, ensuring that full regard is paid to matters of process such as public participation and taxpayer rights as well as ease of comprehension, compliance and administration. A third possibility is that neither tax design nor procedural scruples ought to override the considered programme of the elected government, so long as this programme can gain sufficient votes in the House of Commons.153 Of course, few observers would adopt one of these positions to the complete exclusion of the others. My own preferences are unexceptional amongst public lawyers in emphasising the democratic character of tax law especially on matters of substantive policy, subject to a jealous advocacy of procedural values by Parliament, courts and indeed tax officials. I am also sympathetic to rationalists at least to the extent that MPs ought to be significantly better informed of the tradeoffs involved in the policies that they are asked to approach. This position leads me to be relatively sympathetic to the OTS. Its semi-independence from HM Treasury and its tendency towards discrete projects serve as a constant reminder of the needs of the addressees of tax policy,154 without becoming an actual or perceived threat to the priorities of the elected government. This contrasts with the ambitious and holistic Mirrlees Review, which would have placed significant restrictions on the ability of governments to use tax rules instrumentally for broader policy goals, and whose independence from HM Treasury has made it easy to ignore. Along similar lines, the very weakness of the Finance Bill subcommittee in the House of Lords may be something of a strength. This is because it allows Parliamentary insiders with substantial experience to make well-informed and practical contributions to tax policy without exercising any hard constraints on government. I would also support the introduction of a permanent body to advise MPs on tax policy matters, along the lines of the Congressional Budget Office in the US and as recommended by Wales and Wales.155 The problem is that one only has to disagree slightly with the relative emphases that I have placed on rationalism, process values and electoral politics in order to come up with a very different evaluation of the institutions of policymaking and policy scrutiny. It is fair to say, for example, that many scholars would put a greater emphasis on the coherence and efficiency of the tax system and a lower emphasis on elected government, sometimes going as far as to decry political ‘meddling’ in

153 There is a similarity, though not an exact one, with the ‘red light’, ‘orange light’ and ‘green light’ theories of public law explained in C Harlow and R Rawlings, Law and Administration, 3rd edn (Cambridge, Cambridge University Press, 2009) ch 1. 154 Accepting, of course, that there is room for disagreement on who these addressees are and what their needs might be. 155 Wales and Wales, above n 61, 166.

92 Reform and Scrutiny of Tax Policymaking the tax system.156 For such observers, the OTS and the Finance Bill Subcommittee might seem at best marginal and at worst a shallow substitute for meaningful reform. The semi-independence of the OTS would not be seen as a sensible way of balancing open-mindedness and political influence, but rather as placing it at risk of real or perceived bias towards the immediate interests of Ministers. Our views on the Law Commissions would diverge in a similar way. I would point to the Law Commissions’ reported reticence in engaging with politically sensitive areas of policy, and then argue that a slightly different type of institution is needed in the tax field where political controversy is impossible to avoid. My more rationallyinclined colleagues might retort that tax law could be improved precisely by insulating it from short-term politics and instead treating it as lawyers’ law. Ultimately, the proper approach that ought to be taken towards radical proposals for tax design, in the light of all of the other pressures bearing on our elected representatives, is a matter of political judgement that cannot be answered definitively by lawyers or in a law book.157 This is also reflected in the unwillingness of the UK courts to interfere with government decisions on so-called ‘macroeconomic’ matters, which is discussed in more detail in chapter four. It is worth considering one further possibility, though, which is that the relative weakness of reform and scrutiny processes in tax law are connected to the importance of reliable revenues to the preservation of the state. In other words, have otherwise desirable reforms been obstructed by the state-building considerations discussed in chapter one of this book?

IV. Tax in the Constitution At first sight, the present chapter does not provide particularly fertile material for arguments around state-building and constitutional change. The procedures for the reform and scrutiny of draft Finance Bills may be highly significant to tax practitioners and scholars, but have fewer potential consequences for non-specialists than, say, the funding settlement for Scotland (chapter two), the relationship of taxpayers and state (chapter four) or revenue collection on the Irish border (chapter five). Indeed, the present case-study is by far the most static of the four considered within this book, notwithstanding the establishment of the OTS and the other innovations described above. The procedures for tax policymaking and scrutiny have been improved incrementally but pressure for more radical approaches have thus far been resisted. It follows that a description of the constitutional position of tax that focusses primarily on Westminster institutions is likely to understate the speed and depth of change; correspondingly, when we

156 The language of ‘meddling’ is of course highly loaded and assumes rather than justifies a normative position. 157 See similarly J Snape, The Political Economy of Corporation Tax (Oxford, Hart Publishing, 2011).

Tax in the Constitution 93 look outside Westminster, the need to take account of dynamism becomes more obvious and urgent. The subject-matter of the present chapter is, if we like, the calm in the storm.

A. The Weakness of Tax Reform and Scrutiny If there is little evidence that tax is influencing the evolution of the state in the present context, there is a stronger argument that state-building considerations are placing constraints on the evolution of the tax system. The essence of this argument would be that control over tax rules and revenues and control of the administration more generally are so interconnected that no government would agree to relinquish control over taxation to the extent recommended in the more radical proposals for tax reform. Moreover, the compromise position of allowing policymakers to manipulate tax rates within an otherwise inflexible ‘designed’ tax system would be unlikely to compensate for the loss of other types of flexibility (eg, to manipulate tax thresholds, definitions and computational rules). Equally, it is difficult for radical reformers to concede more than this; a rational tax scheme that allowed subsequent governments to manipulate its structural features would quickly collapse back into something resembling our existing patchwork of rules. There is, nevertheless, a real question as to whether a radical rationalisation of the tax system is ever likely to be acceptable to a government that wishes to survive. Is this pessimistic outlook supported by the material reviewed in the present chapter? Any strong claim that the systemic importance of revenues to the state tends to weaken the procedures for scrutiny and reform of draft legislation would require further evidence. However, there are several grounds to believe that such a claim is, at the very least, consistent with the available evidence. The first is the steadfast resistance throughout UK tax history towards theoreticians, which is sometimes obscured by counterexamples such as Nicholas Káldor’s ultimately successful advocacy of a capital gains tax. It is not easy to implement theoretically-informed reform proposals even outside the tax context, but at least in less politically contentious areas of law it does happen with reasonable regularity. This can be seen from the implementation of Law Commission reports as well as the pioneering efforts of Lord Goff and various legal academics to construct the modern law of restitution. Capital gains tax aside, it is difficult to think of tax examples – PAYE in the 1940s, perhaps, and on an EU level the introduction of the VAT. Secondly, there is the famous incrementalism of tax policy development in the UK.158 The fact that technical problems in the modern income tax can

158 R Rose and T Karran, Taxation by Political Inertia: Financing the Growth of Government in Britain (London, Allen & Unwin, 1987).

94 Reform and Scrutiny of Tax Policymaking frequently be traced back to statutory architecture established at least a century ago159 supports the view that a high priority is given to continuity and ‘keeping the show on the road’. This is compounded by the fact that the UK government’s experiences with more thorough reforms have often been quite negative. Examples could be proliferated, but prominent failures include the capital transfer tax, which replaced the old estate duty but was abandoned after only a few years; the Community Charge or ‘poll tax’ which collapsed even more quickly and precipitated the end of Mrs Thatcher’s premiership; and the short-lived ‘taper relief ’ from capital gains tax which prompted claims that business owners were paying tax at lower rates than their office cleaners.160 Even more directly relevant is the merger of the Inland Revenue and HM Customs & Excise in 2005 and the transfer of ‘policy development’ functions to HMT.161 As noted above, early hopes that this would encourage a more ‘big-picture’ approach to tax policy had to be qualified in favour of a partial return to the previous reliance on deep technical knowledge.162 Thirdly, there does in fact seem to be a concentration of ‘hard power’ over tax policymaking within HMT. It is true that there are opportunities for MPs, Lords, taxpayers and other interested parties to comment on many areas of tax policy before they are enacted. It is also true that many of these procedures have been formalised over the last decade with a view to enhancing scrutiny and allaying fears of regulatory capture. Yet every single one of the scrutiny mechanisms reviewed in this chapter is ‘soft’, in the sense that a government able to command a majority of the House of Commons is ultimately free to ignore them, in return risking little more than reputational damage. It does not follow that Parliamentary procedures should be regarded as trivial. Indeed they have been deployed to significant effect in the course of recent Brexit debates.163 Even still, the government does breach its own principles of tax policymaking relatively regularly and suffers little more than the politely-worded displeasure of the House of Lords Finance Bill Sub-Committee in return. 159 A recent example being the discussion in Turners (Soham) v HMRC [2019] UKFTT 0131 (TC) of the treatment of capital expenditure in the Income Tax Act 1842 and in particular the deductibility of spending on ‘implements, utensils and articles’. A better-known example is Jones v Garnett [2007] 1 WLR 2030, in which income splitting by spouses through a family company was governed by statutory provisions changed only incrementally since 1922. 160 See eg ‘The cleaner liable for 22% tax … while her Apax bosses pay just 10%’, Evening Standard, 24 June 2007, available at www.standard.co.uk/news/the-cleaner-liable-for-22-tax-while-her-apaxbosses-pay-just-10-6592772.html; see also N Lee and R Seal, ‘Capital Gains Tax Relief on the Disposal of Business Assets: A Clear Strategy for Encouraging Entrepreneurs?’ (2013) Journal of Business Law 723–46. 161 See text at n 84, above. 162 See text at n 86, above. 163 In an eye-opening recent episode, MPs amended the Finance Bill 2019 without the consent of the government in order to signal the willingness of Parliament to constrain the government’s conduct in the event of a departure from the EU without a withdrawal agreement: see ‘Brexit: 20 Tory rebels inflict no-deal defeat on government’, BBC News, 8 January 2019, available at www.bbc.co.uk/news/ uk-politics-46803112.

Tax in the Constitution 95 Fourthly, the ability to pass a Finance Bill was once a confidence matter, and MPs could still cause almost insuperable inconvenience by rejecting one.164 This is something of an extreme resort and does little to bolster the influence of Opposition or ‘rebel’ MPs in more normal times. All the same, it underlines that to lose control of the finances is to lose control of the state. This also raises a complication with the state-building discussion in chapter one, which is whether what is really at stake is the survival of the state, the survival of the sitting government or some combination of the two. This is difficult to judge from the legal evidence gathered within this book but invites further study.

B. Multilayer Issues Before concluding this chapter, it is worth making a few brief comments on the multilayer aspects of the reform and scrutiny of tax policy. The OECD’s and EU’s activity in the tax field demonstrate that tax policy can no longer be evaluated from a purely domestic perspective, if indeed this was ever advisable. The compliance of draft legislation with EU law and treaty provisions has long been relevant to the scrutiny process, although of course the former is now in doubt as Brexit approaches. As is discussed in more depth in chapter five, the courts have been obliged to disapply statutory provisions to the extent of their incompatibility with EU law despite their usual obligation to enforce ostensibly valid UK legislation.165 Less hard-edged but still significant are the principles of good governance that are being developed in an EU law context166 and the application of the ECHR to at least some tax questions.167 In a devolution context, the Finance and Constitution Committee of the Scottish Parliament is experimenting with new ways of scrutinising fiscal policy.168 It is not difficult to imagine a situation in which the devolved legislatures have much more thorough scrutiny processes than the Westminster Parliament. If there is force in what I have said above about the risk aversion of the UK institutions in relation to tax rules and revenues, one method of containing risk might be to encourage experimentation in the devolved nations and then to adopt the successful elements at a UK-wide level.

164 See text at n 33, above. 165 Refer to this volume, 133. 166 CHJI Panayi, ‘The Europeanization of Good Tax Governance’ (2018) Yearbook of European Law 1–54. 167 Refer to this volume, 115. 168 See Scottish Parliament, ‘Pre-budget scrutiny 2019–20’, available at www.parliament.scot/ parliamentarybusiness/CurrentCommittees/109564.aspx; Budget Process Review Group, Final Report, 30 June 2017, available at www.parliament.scot/S5_Finance/Reports/BPRG_-_Final_Report_30.06.17. pdf, chs 6–7.

96 Reform and Scrutiny of Tax Policymaking

V. Interim Conclusions This chapter allows for some distinctive interim reflections on the basic claims outlined in chapter one.169 First, there is certainly an overlap between the concerns of tax and constitutional lawyers. Secondly, whilst it is an overstatement to say that constitutional change is influencing the evolution of the tax system, it is plausible that the systemic importance of revenues is constraining the possibilities for scrutiny and reform. Again in line with chapter one,170 this is based on the prima facie evidence that the constitutional underpinnings in this area are surprisingly accommodative of central government. Tax policy remains closely under the control of the Chancellor of the Exchequer, HMT and HMRC; scrutiny opportunities for MPs, Lords and others are improving but remain relatively ‘consequence free’ in the sense of being able to force the government to change course; and there is an extremely risk-averse approach to radical reform, evidenced by a series of past failures of reforms that were only moderately ambitious compared to the Mirrlees Review. Continuity seems to be prioritised at the expense of improvement, let alone theoretical elegance. Moving to the third claim in chapter one, there is no substantial evidence that tax decisions in the present context are likely to have a wider constitutional significance. Fourthly, the chapter supports the idea that the interaction of tax and constitutional questions is context-specific. In particular, it has been argued that an exclusive focus on Westminster institutions exaggerates the stability of the constitution and correspondingly understates the dynamic interaction between tax and constitutional problems. The same point is relevant to the fifth claim; the failure to find strong evidence of constitutional change in the present chapter is both instructive and potentially misleading if taken in isolation from the material discussed in chapters two, four and five.

169 Refer 170 Refer

to this volume, 27. to this volume, 29.

4 Taxpayer Protection This chapter examines the protection of taxpayers in the UK. To what extent are taxpayers protected by administrative practices, public law, ombudsmen or otherwise? What ‘rights’ do taxpayers enjoy under the law and to what extent do special considerations apply to the assertion of rights in the tax context? What relationship between taxpayer and state is implied by these protections and rights? Is this relationship changing and does tax have anything to do with it? These questions are addressed in the order indicated in chapter one. The next section of this chapter provides a brief overview of the relevant debates in constitutional law. This is followed by a more detailed review of developments in taxpayer protection in the UK legal and administrative systems. The chapter concludes with some general comments on the interaction of tax and constitutional change and on the peculiar challenges of balancing the needs of taxpayers with the public interest.

I. Constitutional Debates The constitutional law debates in this area focus on the question whether, and on what basis, courts might be justified in interfering with administrative or legislative decisions with a view to protecting individuals.1 In addressing this question, there are two main starting points: the traditional ‘Diceyan’ account of Parliamentary sovereignty and the rule of law; and the more recent notion that individuals have certain positive rights that in relevant cases are entitled to an enhanced level of protection. The standard text for the traditional approach is once again Albert Venn Dicey’s Introduction to the Study of the Law of the Constitution2 The central arguments of

1 There is only a thin line between these debates and the detailed elaboration of judicial oversight of official conduct through principles of administrative law. It is not my task here to defend any particular conceptual borderline between constitutional and administrative law, though for reasons of space the coverage of the latter is confined to providing illustrative examples to help assess the five claims set out in the first chapter (this volume, 27). The reader is referred to S Daly, Tax Authority Advice and The Public (Oxford, Hart Publishing, 2020) for a more comprehensive review of the application of administrative law doctrines in the tax context. 2 AV Dicey, Introduction to the study of the law of the constitution, 8th edn (Indianapolis, Liberty Fund, 1982).

98 Taxpayer Protection Dicey’s book are now questioned more widely than they once were,3 but they still exert a strong influence and have been repeated recently, widely and often uncritically in the course of debates about the UK’s relationship with the EU. At the heart of Dicey’s argument was his argument that Parliament has the sovereign ‘right to make or unmake any law whatever’,4 using its ordinary legislative procedures, including ‘fundamental or so-called constitutional laws’.5 On this view, neither statutory provisions nor common law principles are safe from being overturned by Parliament simply because they happen to contain some important point of principle. Moreover, as was made clear in a tax case from 1888 in which a certain AV Dicey was counsel for the Revenue, the repeal of the earlier statute need not be explicit but could be implied from an inconsistency between the two enactments: it is a maxim of construction that where the provisions in two Acts of Parliament are clearly inconsistent, then there is of necessity an implied repeal of the inconsistent provisions of the earlier Act.6

At first sight, this seems hostile to any attempt by the courts to develop principles for the protection of individuals against official conduct. It would always be open for Parliament to legislate contrarily to such principles and to deprive them of legal effect. Nevertheless it is clear that Dicey did envisage courts as engaging in such a role: We may say that the constitution is pervaded by the rule of law on the ground that the general principles of the constitution (as for example the right to personal liberty, or the right of public meeting) are with us the result of judicial decisions determining the rights of private persons in particular cases brought before the Courts; whereas under many foreign constitutions the security (such as it is) given to the rights of individuals results, or appears to result, from the general principles of the constitution.

Whatever may be the merits of Dicey’s comparative exercise here, his acceptance of rights of ‘personal liberty’ and ‘public meeting’ implies that courts will protect these rights in circumstances where they would otherwise be in jeopardy. Parliament would still be able to exercise its sovereign power to authorise intrusions on those rights, but the courts could be expected to interpret these intrusions as narrowly as possible consistently with the statutory language. This tension in Dicey’s ideas, as we now know, opened up an opportunity for a significant expansion of administrative law from the mid-twentieth century. If courts can interpret legislation so as to protect the rights to personal liberty and of public meeting, then why not other rights, and indeed why not also prevent officials from behaving in ways that are illegal, unreasonable or procedurally unfair? A further tension arises from the fact that ‘principles of the constitution’ cannot reasonably be defeated simply on the grounds that the principle in question 3 See eg E Wicks, The Evolution of a Constitution: Eight Key Moments in British Constitutional History (Oxford, Hart Publishing, 2006) 49–51. 4 Dicey, above n 2, 3. 5 ibid, 37. 6 The Queen v Commissioners of Inland Revenue (1888) 21 QBD 569, 577.

Constitutional Debates 99 happens to be embodied in statutory form. What matters is whether ‘judicial decisions determining the rights of private persons’ recognise the principle or not. It follows, therefore, that the embodiment of a principle in one statute does not exclude the courts from appealing to that principle when interpreting a later statute.7 The problem is that there is then only a narrow distinction between the judicial elaboration of constitutional principles and entrenchment against implied repeal, the existence of which in English law was denied by Dicey. In the important case of Thoburn v Sunderland City Council,8 Laws LJ rejected this distinction altogether, holding that some statutes embodied constitutional principles of such importance that they would take precedence over later statutes unless expressly repealed. The statutes relating to Scottish, Welsh and Northern Irish devolution are often cited as examples of this type of ‘constitutional’ legislation. This extrapolation from Dicey leads us, by steps, to the second starting point for the judicial protection of rights. This is the idea that there are certain individual interests that are so important that courts should always pay regard to them when interpreting legislation, including provisions that authorise official action. The courts have applied this approach in a variety of contexts9 but it is now most closely identified with the incorporation of ECHR rights into domestic law by the HRA 1998. A particular corollary of the partial incorporation of the ECHR into UK law has been an acceptance that the degree of judicial interference into administrative activity should be scaled to the importance of the rights at stake. This ‘sliding scale’ idea is inherent in the ECHR itself. The most important rights, notably the prohibition of torture in Article 3 of the ECHR, are expressed in unqualified form. There are no grounds upon which an ECHR signatory can justify the use of torture. Other rights, even the right to life in Article 2, are expressed in qualified terms. For instance, Article 2 is not infringed when a death ‘results from the use of force which is no more than absolutely necessary … for the purpose of quelling a riot or insurrection’.10 Other rights, including the right to peaceful enjoyment of possessions under Article 1 of Protocol 1, are subject to a much wider range of qualifications. This is especially relevant to tax law and is discussed in more detail below. Finally, some rights and interests are of undoubted importance but are not protected directly by the ECHR at all. Even if a claimant can prove that an ECHR right is engaged and has been breached by a public authority, the structure of the HRA may place further obstacles in the way of redress. Under section 6 of the HRA, public authorities are prohibited from acting inconsistently with ECHR rights, but this does not apply 7 To hold otherwise would be to treat express Parliamentary support for a principle as a reason for the courts not to recognise that principle, which is perverse. 8 Thoburn v Sunderland City Council [2002] EWHC 195 (Admin), [2003] QB 151. 9 See eg the decision of the Supreme Court in R (Miller) v Secretary of State for Exiting the European Union [2017] UKSC 5, [2017] 1 All ER 593, to insist on Parliamentary sanction for the removal of rights currently enjoyed by individuals and corporations under EU law. See also M Elliott, J Williams and A Young (eds), The UK Constitution after Miller: Brexit and Beyond (Oxford, Hart Publishing, 2018). 10 ECHR, Art 2(2).

100 Taxpayer Protection to certain acts that are carried out in pursuit of primary legislation.11 The attention in that case then turns to the compatibility of that legislation with the ECHR. Section 3 has placed a weighty obligation on courts to interpret legislation ‘in a way which is compatible with the Convention rights’, which may even involve interpolating new words into the offending provision. If this is not possible, section 4 allows the courts to issue a ‘declaration of incompatibility’. This confirms that the offending provision contravenes the ECHR but does not deprive it of legal force until it is repealed.12 This structure of judicial intervention achieves a famously neat reconciliation of rights-enforcement with at least an attenuated version of Dicey’s Parliamentary sovereignty. Yet it is obvious that it falls far short of a power of ‘constitutional review’ to strike down primary legislation for non-compliance with constitutional provisions or treaty obligations. It also does not particularly prioritise taxpayer rights, as will become apparent. There is another sliding scale, which may or may not align with the sliding protection of rights, which is that some areas of government are more susceptible than others to interference by the courts.13 Most famously, decisions involving national security are often thought to be ill-suited to judicial interference even if they affect individuals.14 Another field in which intensive forms of judicial review are thought to be inappropriate was outlined by Laws LJ in the human rights case of International Transport Roth: … greater or lesser deference will be due according to whether the subject-matter lies more readily within the actual or potential expertise of the democratic powers or the courts. Thus, quite aside from defence, government decisions in the area of macro-economic policy will be relatively remote from judicial control …15

Interestingly for present purposes, both cases cited for this proposition concern central government control of local government finance.16 Laws LJ thought that these macro-economic decisions raised some of the same underlying considerations as human rights cases, albeit in a different form: Though these were not, of course, human rights cases, like problems as to the deference due to the democratic decision-maker arise in relation to the proper intensity of judicial review …’.17 11 Human Rights Act (‘HRA’) 1998, s 6(2). 12 A fast-track procedure is provided for such repeals under HRA 1998, s 10. 13 Refer to discussion in P Daly, ‘Justiciability and the “political question” doctrine’ [2010] Public Law 160. 14 See eg Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374 HL. 15 International Transport Roth GmbH v Secretary of State for the Home Department [2002] EWCA Civ 158, [87]. Emphasis added. 16 R v Secretary of State for the Environment, Ex p Nottinghamshire County Council [1986] AC 240 and R v Secretary of State for the Environment, Ex p Hammersmith and Fulham London Borough Council [1991] 1 AC 521. 17 International Transport Roth, above n 15, [87]. Likewise P Cane notes that ‘courts will be highly deferential to decisions on defence or macro-economic policy regardless of whether the standard of review adopted is Wednesbury unreasonableness or proportionality’: P Cane, Administrative Law, 5th edn (Oxford, Oxford University Press, 2011) 192.

Protection of Taxpayers 101 Another well-known way of framing these issues is to observe that some decisions of public authorities are ‘polycentric’ in that they affect a wide range of constituents to varying degrees, and that favouring one of these constituents in isolation can have quite detrimental or at least unpredictable effects on the others. They are therefore thought to be more suited to democratic decision-making than to the binary ‘winner versus loser’ paradigm of the courts.18

A. Non-legal Protection The increasing readiness of the courts, since the time of Dicey, to restrain improper administration and to protect rights represents a major achievement in the development of constitutional principle in the UK. Nevertheless, the opportunity to vindicate the interests of those affected by administrative activity is not entirely confined to lawyers, courts and tribunals. In many areas of administration, there are sophisticated internal review procedures whereby an impugned decision may be reviewed by an independent team, or even reperformed. Instances of maladministration can also be raised in Parliament with a view to influencing the content of subsequent legislation. These non-legal methods are likely to be particularly important in those cases in which either the nature of the interests affected, or the character of the decision in question, are thought to be unsuited to judicial enquiry. They may also be emphasised by commentators who are sceptical of the wisdom of intensive judicial review or worried about its consequences for democratically accountable government.19

II. Protection of Taxpayers We now move to the question of how taxpayers are protected from the conduct of HMRC and other public authorities. It is important to note at the outset that this forms only half of a wider debate, the other half of which considered how to protect the rights of those who benefit from public expenditure, not least from taxpayers seeking to evade, avoid or otherwise minimise their liabilities.20 At the risk of stereotyping, taxpayer protection tends to resonate with right-leaning 18 The point of reference on this matter is LL Fuller, ‘The forms and limits of adjudication’ (1978) 92(2) Harvard Law Review 353–409, 394. 19 Refer generally to C Harlow and R Rawlings, Law and Administration, 3rd edn (Cambridge, Cambridge University Press, 2009) ch 1; see also JAG Griffith, The Politics of the Judiciary (London, Fontana, 1977). 20 See generally P Alston and N Reisch (eds), Tax, Inequality, and Human Rights (Oxford, Oxford University Press, 2019); I Saiz, ‘Resourcing Rights: Combating Tax Injustice from a Human Rights Perspective’ in A Nolan, R O’Connell and C Harvey (eds), Human Rights and Public Finance: Budgets and the Promotion of Economic and Social Rights (Oxford, Hart Publishing, 2013) 77–104; cf K Datt, ‘Tax and human rights − much ado about nothing’ (2018) 16(1) eJournal of Tax Research 113–38.

102 Taxpayer Protection commentators and draws on the classical human rights that find expression in the ECHR and HRA 1998. Conversely, the protection of the beneficiaries of tax policy tends to resonate with left-leaning commentators and draws on the economic, social and cultural rights that rely on tax revenues for their realisation. In principle, there is much to learn from both halves of this debate. However, I have chosen to focus on taxpayer protection for two closely linked reasons. First, it has a much longer pedigree, stemming perhaps from the long-standing need for states to bargain for resources with powerful and propertied citizens.21 There is therefore a more established body of law to discuss, which in turn offers a relatively clear window into how the UK constitution processes the relationship between citizen and state in the tax context. Secondly, the high priority afforded to taxpayer protection in UK history has neither been free of contention nor constant in intensity across time or across taxes. To look at this topic is therefore not necessarily to presume a politically conservative viewpoint but rather to see how taxpayer and ‘public interest’ arguments have been balanced within a wide variety of concrete disputes and administrative structures. This is also possible within the ‘protection of beneficiaries’ debate but is more difficult because of the very recent nature of most of the available legal materials. The fluidity of taxpayer protection is illustrated in the following sections of this chapter by reference to major changes in the administration of income tax since its introduction at the end of the eighteenth century. Whilst the examples provided are not representative of the tax system as a whole, and (given more space) could usefully be accompanied by discussions of more traditionally coercive taxes such as excise duties, they are nevertheless significant because of the imprints that they have left on constitutional law more generally. They therefore provide a helpful background for the argument later in the chapter that recent developments in tax administration are creating new instabilities that are likely in due course to leave their own imprints.

A. Decentralised Income Tax Administration As is well known, the UK income tax emerged between 1798 and 1803, in response to the extreme pressures placed on the public finances by the French Revolutionary Wars. The new tax faced two compounding problems. First, unlike some pre-existing taxes, it was inherently difficult to administer. Whereas liability to ‘assessed taxes’ on visible luxuries could be determined by looking for those luxury items,22 and payment of stamp duties could be ensured by confining certain 21 See D Bräutigam, ‘Introduction: taxation and state-building in developing countries’ in D Bräutigam, O-H Fjeldstad and M Moore (eds), Taxation and State-Building in Developing Countries: Capacity and Consent (Cambridge, Cambridge University Press, 2009) 12. 22 After all, dogs bark, horses bray, hair powder powders hair and carriages carry things. See further J Jeffrey-Cook, ‘William Pitt and his Taxes’ [2010] BTR 376–91.

Protection of Taxpayers 103 legal advantages to duly stamped documents, the quantum of a person’s income is not immediately obvious. Instead, a close examination may be needed of that person’s financial records, business engagements and other activities. This leads us to the second problem, which is that the new tax generated serious concerns about state intrusion into the financial affairs of taxpayers that had previously been considered private. In response to these challenges, certain features were borrowed from the older Land Tax, in which there were similar complexities around valuing the tax object.23 One of these features was the deduction of tax at source wherever possible, or in modern terminology, tax withholding. This meant that certain types of payments to taxpayers were made net of tax, with the payer rather than the recipient taxpayer remitting the necessary amounts to the tax authorities. This not only minimised the opportunities for evasion but implied the division of the income tax into ‘schedules’, each schedule representing a different withholding technique.24 With the responsibility for tax collection dispersed amongst a number of individuals and organisations under different schedules, the chances of any one person gaining visibility of a taxpayer’s overall financial affairs was much reduced. A further borrowing from Land Tax was the devolution of assessment and collection functions to groups of local notables, known in this context as the ‘general commissioners of income tax’.25 This was particularly significant where the nature of the income in question made tax withholding impossible, as was the case for income from trade.26 Inland Revenue employees known as ‘surveyors’ had an oversight role and could offer advice but only had limited powers to interfere with assessments.27 The City of London had its own arrangements, which may have facilitated widespread non-compliance.28 This suggests, further, that the arrangements for the taxation of trading income may have been weighted towards the protection of taxpayer interests to the extent that significant revenue losses were tolerated.

23 See JA Jones, ‘The Special Commissioners from Trafalgar to Waterloo’ in J Tiley (ed), Studies in the History of Tax Law, vol 2 (Oxford, Hart Publishing, 2007) 7. 24 As Pearce helpfully explains, the association of schedules with different types of income, rather than different types of collection mechanism, was a later development: see J Pearce, ‘Great Western Railway Co v Bater (1992): A Question of Classification’ in J Snape and D de Cogan (eds), Landmark Cases in Revenue Law (Oxford, Hart Publishing, 2019). 25 Ay Jones, above n 23, 7. As A Jones relates, there were various cases in which assessment was instead (or could at the taxpayer’s option be) performed by Inland Revenue officials known as the special commissioners of income tax. The ‘specials’ raise distinctive historical questions but for space reasons they are not discussed further within this chapter. 26 This is because income tax is imposed not on trade revenues, but on profits, being the excess of revenues over expenses. This made it impossible to apply a standard rate of deduction to payments to traders for their goods or services, with the result that trade revenues were received gross and tax liabilities calculated later. 27 A useful summary is provided by C Stebbings in The Victorian Taxpayer and the Law (Cambridge, Cambridge University Press, 2009) 99. 28 Refer to K Cousins, ‘The Failure of the First Income Tax: A Tale of Commercial Tax Evaders?’ (2018) 39(2) Journal of Legal History 157–86.

104 Taxpayer Protection Thus far, this decentralised administrative system seems remarkably protective of taxpayers against central government power, certainly by modern standards. Yet counterintuitively it also allowed the Inland Revenue to develop tax policies in ways that might otherwise have been thought unacceptable. An example is the practice of providing relief for elements of asset depreciation despite the ostensible disallowance of such expenses in the Income Tax Act 1842.29 At first sight this seems to breach Article 1 of the Bill of Rights 1688, which makes illegal ‘the pretended Power of Suspending of Laws or the Execution of Laws by Regall Authority without Consent of Parlyament’. Yet in a formal sense the Bill of Rights would not have been engaged. Any such relief would be reflected in the tax assessment confirmed by the general commissioners, who were not servants of the Crown and from whose decision there was no further appeal before 1874.30 This puts into some perspective Lord Hewart’s comments about tax in The New Despotism,31 his 1929 polemic against the growth of executive discretion. He sought to shock his readers by imagining that ‘the power of deciding disputes as to liability to income-tax were vested in the Board of Inland Revenue, without appeal to the Courts’, conceding that it might be replied ‘but that is an extreme case which would never be sanctioned by Parliament’.32 As we have just seen, however, taxpayers before 1874 were known to experience and even benefit from Inland Revenue discretion without any provision for appeals to the courts. Hewart’s depiction of a journey from the light of law into the darkness of discretion is therefore contradicted by his most powerful example.

B. Juridification This illustrates a further point, that even if we accept that taxpayers’ property rights ought to be protected against the state, the best method of achieving this protection may not remain constant. Indeed, the introduction in 1874 of an appeal by ‘case stated’ to the courts from the decisions of commissioners changed the landscape significantly. This may again be illustrated by reference to the depreciation example. The courts immediately insisted on fidelity to the disallowance of depreciation expenses in the Income Tax Act 1842,33 to which Parliament responded by enacting the first statutory allowance for the ‘wear and tear’ of machinery and plant only

29 See D de Cogan, ‘Law and Administration in Capital Allowances Doctrine: 1878–1950’ in J Tiley (ed), Studies in the History of Tax Law, vol 6 (Oxford, Hart Publishing, 2013) 177 ff; M Lamb, ‘Defining “profits” for British income tax purposes: a contextual study of the depreciation cases, 1875–1897’ (2002) 29(1) The Accounting Historians Journal 105. 30 Customs and Inland Revenue Act 1874 ss 8–10; C Stebbings, ‘The appeal by way of case stated from the determinations of general commissioners of income tax: an historical perspective’ [1996] BTR 611. 31 Lord Hewart of Bury, The New Despotism (London, Ernest Benn, 1929). 32 ibid, 45–46. 33 Re Addie (1875) 1 TC 1; Caledonian Railway v Banks (1880) 1 TC 487; Coltness Iron Company v Black (1881) 6 App Cas 315.

Protection of Taxpayers 105 four years later.34 The appeal mechanism was also destined to play an important secondary role. As Stebbings explains, the increasing complexity of the income tax and the economic environment in the late nineteenth and early twentieth centuries placed heavy strains on the administrative system and particularly on those general commissioners who lacked specialist tax expertise.35 The outcome was a gradual hollowing out of local administration. Inland Revenue officials came to exercise administrative functions formally allocated to the general commissioners, with those commissioners providing a ‘rubber-stamp’ or sometimes an additional layer of appeals.36 The process undermined the system established in 1798–1803 but did not lead to the outright erosion of taxpayer rights. This is because there were contrary trends of greater reliance on the courts37 and a reassertion of the constitutional importance of consent to taxation.38 As the case of Bowles v Bank of England itself demonstrated,39 the courts were prepared where necessary to step in and protect taxpayer interests even at the expense of significant inconvenience to the government. The commitment of the courts to taxpayer protection was reinforced by a willingness to apply a literal approach to statutory interpretation. In the famous formulation of Rowlatt J: ‘… in taxation you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax: there is no presumption as to a tax; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly and that is the tax.’40

This approach was not applied uniformly41 and did not excuse courts from making difficult decisions rooted in deeper examinations of the purpose and proper construction of Acts of Parliament.42 Yet it did provide taxpayers with 34 Customs and Inland Revenue Act 1878, s 12. 35 Stebbings, above n 27, 94–105. Needless to say, the direction of travel was not altogether towards increased administrative difficulty. On the contrary, various contextual factors pointed towards greater administrative ease, such as increased literacy and numeracy levels (relevant to the quality of record-keeping) and improved transport links (which provided individual tax officials with greater geographical reach as well as providing new opportunities for taxation: see eg C Stebbings, ‘The Taxation of Road Travel: Revenue and Regulation in Georgian Britain’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 9 (Oxford, Hart Publishing, 2019)). 36 A concrete example of rubber-stamping, relating to the settling of percentage rates for the ‘wear and tear’ allowance under Customs and Inland Revenue Act 1878, s 12, is related by de Cogan, above n 29, 189–90. 37 Stebbings, above n 27, ch 4. 38 ibid, ch 6. This is especially visible in the rhetoric of T Gibson Bowles: see M Daunton, ‘Thomas Gibson Bowles v Bank of England (1913): A Modern John Hampden?’ in Snape and de Cogan, above n 24. 39 Bowles v Bank of England [1913] 1 Ch 57, 6 TC 136. 40 Cape Brandy Syndicate v CIR (1920) 12 TC 358, 366. See also Stebbings, above n 27, 111–22; Partington v AG (1869) LR 4 HL 100, 122 per Lord Cairns. 41 See H Monroe, Intolerable Inquisition? Reflections on the Law of Tax (London, Stevens, 1981); D de Cogan, ‘Purposive Interpretation in the Age of Horse Trams’ [2015] BTR 80–92. 42 See D de Cogan, ‘Gartside v IRC (1967): “This decision involved a small point”’ in B Sloan (ed), Landmark Cases in Succession Law (Oxford, Hart Publishing, 2019).

106 Taxpayer Protection a high degree of certainty as to their likely tax treatment, and, once again, was applied even in situations where it caused serious inconvenience to the tax authorities.43 It is interesting that these great shifts in the methods of protecting taxpayers coincided with controversial expansions of the tax system, which upset the prevailing balance between public revenue needs and private rights. As we have seen, the establishment of the income tax from 1798 to 1803 provoked deep fears of officials accumulating information that had previously been regarded as purely private. Likewise, the introduction of income tax progression and land value taxation in the Finance (1909–10) Act 1910, and the subsequent incorporation of wage-earners into the income tax net during World War I,44 implied a much larger state apparatus than had previously been accepted. The correlation with the expansion of tax administration by local lay commissioners and the increased reliance on courts and literal interpretation, respectively, is not exact but does suggest that a balance was being held between the demands of public administration and taxpayer protection. It is almost surprising how infrequently these competing public and private interests came into open conflict, though this may have something to do with Gladstone’s opposition to ‘hypothecation’.45 This meant that instead of particular streams of public revenue being earmarked for particular applications, all revenues were, and largely still are, paid into a single consolidated fund. In turn, this makes it more difficult to argue that the protection of a specified taxpayer could have detrimental consequences for a specified public good, or vice versa. Different considerations applied to local government, where utilities such as proper sewerage systems had to be paid from property rates and direct conflict between ratepayers and reforming politicians was more routine. The way in which these conflicts were resolved differed widely between localities. The example of Birmingham is particularly interesting on account of the influence of the ‘civic gospel’, a Christian-inspired movement that emphasised the capacity for city governments to take concrete steps to improve lives.46 In a sense, the civic gospel posed the same challenge as the modern ‘beneficiary protection’ literature, which is discussed above and forms a counterpart to the argument of the present chapter.47 Who cares about the property rights of taxpayers or ratepayers, it might be asked, when a successful assertion of those rights could hinder efforts to prevent cholera and diphtheria?

43 Most famously in IRC v Duke of Westminster [1936] AC 1, 19 TC 490. 44 See generally M Daunton, Just Taxes: The Politics of Taxation in Britain, 1914–1979 (Cambridge, Cambridge University Press, 2009) ch 2. 45 See M Daunton, Trusting Leviathan: The Politics of Taxation in Britain, 1799–1914 (Cambridge, Cambridge University Press, 2007) 66–67. 46 Refer to A Briggs, Victorian Cities (London, Odhams Press, 1963) ch 5. 47 See text at n 20, above.

Protection of Taxpayers 107

C. Finely-detailed Legislation If the increasing importance of appeals and literal interpretation in the late nineteenth and early twentieth centuries signalled a renewed concern for the protection of income taxpayers in a changed political and social context,48 it also contained opportunities for governments and tax authorities. This is because if tax legislation were to be applied literally, then surely it would be possible for the government to micromanage tax outcomes through Finance Acts. In the event that legislation misfired by failing to produce the desired outcome, it could be corrected either by increasing the level of statutory detail49 or by supplementing the basic rules of taxation with anti-avoidance techniques. Our capital wastage example is once again helpful. The train of consequences set in motion by the insistence of the courts on adherence to the disallowance of capital expenditure in the Income Tax Act 1842 did not stop at the enactment of the wear and tear allowance in 1878. Instead it generated a whole body of practice, which was codified into the Income Tax Act 1945 and ultimately into 581 sections and four Schedules in the Capital Allowances Act 2001. All of this from one short provision in 1878! At the risk of repetition, this increased specificity is a double-edged sword from the perspective of taxpayer protection. It holds out the promise to taxpayers that their liabilities will be predictable even at the level of fine detail, but equally signals to the government that something is going wrong if a taxpayer’s liabilities turn out to be lower than expected. The idea that tax authorities might want to supplement statutory detail with other techniques in cases where it produced unexpected outcomes was familiar, at the very latest, by 1915. This is when anti-avoidance provisions were introduced for the wartime excess profits duty, which prevented deductions where a ‘transaction or operation has artificially reduced the … profits of the trade …’.50 This was soon followed by an important set of anti-avoidance provisions for income tax in the Finance Act 1922. In time, the literal approach to statutory interpretation itself came under attack. The Fleet Street Casuals case51 of 1981 confirmed beyond doubt that the tax authorities enjoy a general administrative power to decide how best to allocate their limited resources, and that this is subject to judicial review.52 The seminal Ramsay case53 of the same year decided that a series of transactions

48 See generally Stebbings, above n 27, ch 4. 49 As can be seen by comparing the length and detail of Finance Acts between 1920 and 1940. 50 Finance (no 2) Act 1915, Sch IV, Pt I, para 5, discussed by P Harris, ‘The Profits Tax GAAR: An Aid in the ‘Hopeless’ Defence Against the Dark Arts’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 8 (Oxford, Hart Publishing, 2017). 51 R v IRC ex p National Federation of Self Employed and Small Businesses Ltd [1982] AC 617 (‘Fleet Street Casuals’). 52 See generally D de Cogan, ‘CIR v National Federation of Self-Employed and Small Businesses (1981): All Grievances Converging on Tax Law’ in Snape and de Cogan, above n 24. 53 WT Ramsay v IRC [1982] AC 300.

108 Taxpayer Protection designed to attract a tax advantage could be interpreted as a single composite transaction that did not attract such an advantage. In the process, it sparked a major debate about the circumstances in which courts could neutralise tax avoidance schemes, which is still active at the time of writing. The literal approach to tax interpretation was then specifically disapproved in Pepper v Hart54 and subsequent cases. The shift away from literalism in these cases is not inherently objectionable and, if anything, has served to bring tax closer into line with other areas of public law. The idea that statutes should be interpreted purposively, that regulatory avoidance ought to be curtailed, that the relevant public authority might have discretionary powers and that these powers should be subject to judicial review would hardly be ground-breaking in any other field of administration. Yet it has signalled a marked shift in the balancing of taxpayer and public interests and has dismantled old assumptions that winning arguments on the ‘technical’ meanings of tax provisions is either necessary or sufficient for taxpayers seeking to achieve their desired tax outcomes.

D. Accreting Administrative Powers These processes of change have accelerated in more recent times. The major shift in recent years, however, has not been the enactment of a General Anti-Abuse Rule (GAAR), which still seems rather marginal.55 Instead it is the rise of a range of administrative techniques that, taken together, make it more difficult, more expensive and riskier for a taxpayer to disagree with the tax authorities. There is too much material, and too little space here, to examine every administrative reform in turn.56 Instead a thematic summary of some of the most important developments will suffice for present purposes and is presented below. Before this, it is worth drawing out a couple of further reasons for the recent rebalancing of the relationship between state and taxpayer. One is the merger in 2005 between the two pre-existing revenue departments, the Inland Revenue and Customs & Excise.57 This is significant for present purposes because the latter department had long experience of the ‘rougher’ side of tax administration, including the collection of customs and excise duties but

54 Pepper v Hart [1993] AC 593; see generally P Ridd, ‘Pepper v Hart and Others (1992): The Case of the Misunderstood Minister’ in Snape and de Cogan, above n 24. 55 For a different view, see A Brassey, Tax, GAAR and the Rule of Law (PhD Thesis, University of Cambridge 2017). 56 Useful overviews are provided in T Bowler, The implications of recent additions to HMRC powers and the shifting balance in the relationship with taxpayers, TLRC Discussion Paper No. 13, November 2017, available at www.ifs.org.uk/uploads/TLRC_DP_13.pdf; Economic Affairs C ommittee, The Powers of HMRC: Treating Taxpayers Fairly (HL 2017–19, 242). 57 See P Tuck, D de Cogan and J Snape, ‘A tale of the merger between the Inland Revenue and HM Customs & Excise’ in Harris and de Cogan, above n 35.

Protection of Taxpayers 109 also matters such as drugs enforcement. These tasks might involve physical inspections, not necessarily with the consent of those being investigated, and as a result Customs & Excise enjoyed coercive powers well in excess of those available to the Inland Revenue.58 The department was also known for a tougher ethos than its supposedly more intellectual and technically-oriented counterpart. When the two departments merged, Customs & Excise was very much the junior partner in terms of size, yet one of the hopes expressed for the merger was that the combined body might learn from this ethos and take a more aggressive approach to the avoidance of taxes previously managed by the Inland Revenue.59 Another important development is the efforts of the OECD and EU to develop cross-jurisdictional consensus around administrative best practices, which have encouraged and in some cases even required tax authorities to seek wider powers.60 With this background in mind, it is worth looking in more detail at some recent developments in tax administration. The aim here is not to provide a comprehensive account but rather to convey a sense of the sheer breadth of the increase in revenue powers by drawing out seven important trends.

i. Reversal of Information and Cash-flow Advantages The first of these trends is the reversal of information advantages. As we have already seen, it was a design feature of the UK income tax that individual tax officials would not have visibility over the totality of a taxpayers’ affairs. This had to be qualified in the light of the introduction of progression in 1910, given that the correct rate of income tax then depended on a person’s total income.61 Nevertheless, the starting point persisted that taxpayer information is private unless specifically required by legislation. The problem with this in the age of complex avoidance schemes is that the information available to tax authorities may be insufficient, or in such an inconvenient form, that they do not realise for several months or even years that a tax avoidance scheme has been operated at all. By this time, in extreme cases, the scheme might have been marketed sufficiently widely to other taxpayers as to pose a systemic threat to tax revenues.62 In order to redress this balance,

58 P Alldridge, Criminal Justice and Taxation (Oxford, Oxford University Press, 2017) 88–89. 59 See Tuck, de Cogan and Snape, above n 57, 236. 60 See generally CHJI Panayi, ‘The Europeanization of Good Tax Governance’ (2018) Yearbook of European Law 1–54. 61 J Pearce, ‘The Rise and Development of the Concept of ‘Total Income’ in United Kingdom Income Tax Law: 1842–1952’ in J Tiley (ed), Studies in the History of Tax Law, vol 2 (Oxford, Hart Publishing, 2007). 62 The most infamous marketed schemes were the ‘bottom of the harbour’ schemes in Australia: see T Percy Boucher, Blatant, artificial and contrived: tax schemes of the 70s and 80s (Canberra, Australian Taxation Office, 2010). Many of the UK’s marketed tax schemes in the same period were devised by the Rossminster group, whose activities form the subject matter of many of our leading tax avoidance cases: see N Tutt, The history of tax avoidance: an update of the 1980s classic The Tax Raiders (London, Wisedean, 1989).

110 Taxpayer Protection Parliament introduced the Disclosure of Tax Avoidance Schemes or ‘DOTAS’ regime in which taxpayers operating arrangements with certain ‘hallmarks’ must provide details to the tax authorities before they are implemented.63 This allows the authorities to develop strategies to respond to avoidance schemes, including in appropriate cases sponsoring remedial legislation, before too much damage is done to the public finances. This has been supplemented in recent years with formal means of exchanging information between jurisdictions, either on request or on an automatic basis, in order to speed up the process by which tax authorities can diagnose and then combat international avoidance schemes.64 Whilst there is not much opposition to the idea of information exchange in principle, there are concerns, for instance around the security of confidential data once it has left its ‘home’ jurisdiction.65 A second trend concerns the linked question of cash-flow advantage. As cash now is more valuable than cash later, it is obviously disadvantageous for the revenue authorities to have to wait until disputes are resolved before receiving revenues. This is so especially in view of the delays when a taxpayer pursues successive appeals. In the Finance Act 2014 this position was rebalanced in favour of HMRC through the introduction of Accelerated Payment Notices or ‘APNs’.66 These notices may be issued by HMRC in specified circumstances and oblige the taxpayer to pay disputed amounts of tax upfront. In the event that HMRC ultimately lose the dispute, the tax is repaid to the taxpayer.

ii. Reallocation of Resources A third tendency is the targeting of administrative resources to taxpayers who pose a high risk of tax avoidance or evasion. The principle that the tax authorities have a broad discretion to decide how best to allocate their resources was established beyond doubt in the Fleet Street Casuals case.67 A further step in the same direction was taken in the Finance Act 1994 with the introduction of ‘self-assessment’ for income tax, capital gains tax and corporation tax purposes.68 This shifted the primary responsibility for assessing these taxes from the revenue authorities onto taxpayers, leaving officials with oversight tasks such as checking the accuracy of returns, carrying out further investigations and taking any necessary remedial actions. It is a short step from this to the idea that ‘risk’ to the public revenues is

63 Finance Act 2004, Part 7. 64 There is a useful review of information matters, including Tax Information Exchange Agreements and Action 13 of the OECD’s Base Erosion and Profits Shifting project, in T Dagan, International Tax Policy: Between Competition and Cooperation (Cambridge, Cambridge University Press, 2017) 152–59. 65 See further OECD, Keeping It Safe: the OECD guide on the protection of confidentiality of information exchanged for tax purposes (Paris, OECD, 2010). 66 Finance Act 2014, Part 4, ch 3. 67 Fleet Street Casuals, above n 51. 68 Finance Act 1994, Part 4, ch 3; see generally A Mumford, Taxing Culture: towards a theory of tax collection (Abingdon, Routledge, 2017).

Protection of Taxpayers 111 concentrated in certain small subsets of the taxpaying population, and hence that the resources of the tax authorities would be used most efficiently by targeting these areas of risk.69 This seems sensible at first sight, but on further inspection it is uncomfortable to subject taxpayers to closer scrutiny and higher compliance costs based on non-statutory and potentially subjective notions of risk.70 At worst, it provides financial incentives for taxpayers to acquiesce in HMRC interpretations of the law in order to secure low-risk status, whether or not those interpretations are correct.

iii. New Administrative Techniques This leads us directly to some highly controversial further developments. So, fourthly, there has been an increasing tendency to attach unpleasant consequences to ‘soft law’ standards that do not themselves have the force of statute. The most commonly cited example is the Code of Practice on Taxation for Banks.71 This document, which demands that signatories ‘comply with the spirit, as well as the letter, of tax law, discerning and following the intentions of Parliament’, is in principle voluntary. However, it was always intended that breaches of the code would carry consequences,72 and the Finance Act 2014 introduced a procedure for naming and shaming signatories in breach of their obligations under the code.73 As Collier notes, it is eye-opening for statutory sanctions to be attached to a voluntary code that has no statutory basis of its own.74 Freedman and Vella also report that a bank’s signing of the code was used as justification for retrospective legislation, an approach that they describe as ‘misguided’.75 Even more eye-opening, fifthly, is a more general tendency to attach negative consequences to the pursuit of tax avoidance schemes. This can in extreme cases blur the distinction between tax evasion, which is criminal and is usually

69 See generally J Freedman, G Loomer and J Vella, ‘Corporate tax risk and tax avoidance: new approaches’ [2009] BTR 74. The idea that regulatory style should vary according to the likelihood of recalcitrance is often traced to the regulatory ‘pyramid’ explained in I Ayres and J Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (Oxford, Oxford University Press, 1992) ch 2. 70 For large businesses, at any rate, there are published risk criteria: see HM Revenue & Customs, Large Business compliance – enhancing our risk assessment approach (Consultation document, September 2017), available at https://assets.publishing.service.gov.uk/government/uploads/system/ uploads/attachment_data/file/645034/Large-Business-compliance_enhancing-our-risk-assessmentapproach_consultation.pdf. 71 HM Revenue & Customs, Code of Practice on Taxation for Banks (Policy paper, December 2013), available at www.gov.uk/government/publications/code-practice-taxation-banks/code-of-practice-ontaxation-for-banks. This was originally introduced in 2009. 72 R Collier, ‘Intentions, banks, politics and the law: the UK Code of Practice on Taxation for Banks’ [2014] BTR 478, 491. 73 Finance Act 2014, ss 285–88. 74 Collier, above n 72, 498. 75 J Freedman and J Vella, ‘Legislative Comment. Finance Act 2016 notes: s 161 and Sch 19: large businesses: tax strategies and sanctions for persistently unco-operative behaviour: further commentary’ [2016] BTR 653, 658.

112 Taxpayer Protection associated with outright fraud, and tax avoidance, which is not criminal though it may be ineffective and is sometimes believed to be immoral. A recent example is the introduction of ‘follower notices’, again by the Finance Act 2014.76 The intention of the regime seems to be to help HMRC to enforce test cases against other taxpayers (‘followers’) who have substantially similar circumstances but are deliberately delaying settlement by pursuing hopeless appeals through the courts.77 This is a reasonable policy aim, but not atypically of tax policy, a sledgehammer has been used to crack a nut. So, to highlight a few features of the legislation, follower notices can be issued in the course of certain disputes if ‘HMRC is of opinion that there is a judicial ruling which is relevant to the chosen arrangements.’78 The ruling is relevant if ‘the principles laid down, or reasoning given, in the ruling’ would deny the tax advantage sought by the taxpayer and if ‘it is a final ruling’.79 Once a follower notice is issued, the decision by a taxpayer to pursue the dispute through the courts incurs a penalty of 50 per cent of the tax due, should the taxpayer subsequently lose. The obvious problems here are that the legislation is not confined to test cases but could be used in a much wider range of circumstances, and that distilling the ‘principles’ from a judicial ruling is a highly skilled task that produces contestable results even when performed by experienced lawyers. The idea that HMRC officials will be able to carry out this task to a sufficient degree of perfection to justify a 50 per cent penalty is extremely experimental, to say the least. As Bowler points out, the problem is heightened in cases where the ‘final ruling’ has been made by the First-tier Tribunal, whose decisions do not have and are not designed to have precedent value in the conventional sense.80 It is therefore difficult to avoid the conclusion of a range of influential commentators that the follower notice system restricts access to justice.81 There is a similar problem with 60 per cent penalties for pursuing appeals in cases involving the GAAR,82 which may also have the effect of negating some of the taxpayer safeguards included in the original GAAR legislation.83 It will not be lost on the reader that follower notice and GAAR penalties may coerce adherence to standards that are not rooted in a proper interpretation of statutory tax law, thus compounding the fourth tendency described above. Three further examples of the penalisation of non-criminal conduct can be mentioned more briefly. In the Finance (no 2) Act 2015, provision was introduced

76 Finance Act 2014, Part 4, ch 2. 77 See generally HM Revenue & Customs, Follower notices and accelerated payments (Guidance, July 2015), available at www.gov.uk/government/publications/follower-notices-and-acceleratedpayments/follower-notices-and-accelerated-payments. 78 Finance Act 2014, s 204(4). 79 Finance Act 2014, s 205(3). 80 Bowler, above n 56, 29. 81 An overview is provided in Economic Affairs Committee, above n 56, ch 5. 82 Finance Act 2016, s 158. 83 Bowler, above n 56, 31–32. Refer also to text at n 147, below.

Protection of Taxpayers 113 for the direct recovery of tax debts from taxpayers where other means of collection have failed.84 Technical as this sounds, it can involve the freezing of bank accounts,85 a sanction that is more familiar from the law on terrorist financing. Even more controversial is the ‘loan charge’ in the Finance (No 2) Act 2017 that imposes retroactive tax liabilities on certain ‘disguised remuneration’ schemes.86 As the Economic Affairs Committee point out, the charge applies to schemes from 1999 onwards and hence to tax returns that otherwise cannot be reopened under the usual limitation periods.87 The Committee also noted the proposal to extend the limitation period from four to 12 years for taxpayers with offshore activities, which is half-way to the 20 year limitation where fraud is suspected.88 A sixth tendency, although it is not always pursued consistently,89 is to broaden the focus of enforcement activity from taxpayers to their advisers. In fact, this is inherent in the DOTAS regime discussed above,90 which places notification requirements not only on taxpayers but on the ‘promoters’ of relevant avoidance schemes. More recently this has been supplemented by the ‘Promoters of Tax Avoidance Schemes’ regime, under which HMRC may issue a ‘conduct notice’ or a more serious ‘monitoring notice’ to advisers who meet certain threshold conditions.91 If the adviser breaches the requirements of these notices, sanctions can be applied, including imprisonment for the most serious offences. There is also a new corporate criminal offence of ‘failing to prevent the criminal facilitation of tax evasion’,92 which is essentially designed to overcome the evidential difficulty for prosecutors in proving that ‘that the senior members of the relevant body were involved in and aware of the illegal activity’.93

iv. Intensity of Purposive Interpretation A seventh tendency bridges the executive and judiciary and builds on the transition from a patchy observance of literal interpretation of tax statutes to purposive interpretation from Pepper v Hart onwards.94 The question now is whether officials

84 Finance (no 2) Act 2015, s 51, Sch 8. 85 ibid, Sch 8, para 6. 86 Finance (no 2) Act 2017, ss 34–37, Schs 11–12. 87 Economic Affairs Committee, above n 56, [64]. 88 ibid, [32]–[45]. 89 One of the controversial aspects of the loan charge is that it is targeted against taxpayers rather than their advisors or employers, many of whom benefited from the disguised remuneration arrangements and in some cases even insisted on their workers’ participation in the schemes: ibid, [54], [60], [69]. 90 Refer to text at n 63. 91 See Finance Act 2014, Part 5 and Schs 34–36. 92 Criminal Finances Act 2017, Part 3. 93 HM Revenue & Customs, Tackling tax evasion: Government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion (Government guidance, September 2017), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_ data/file/672231/Tackling-tax-evasion-corporate-offences.pdf, 3. 94 Pepper v Hart, above n 54.

114 Taxpayer Protection and judges can move beyond purposivism to embrace techniques better described in terms of abus de droit. John Snape notes intimations of this in Lord Wilberforce’s speech in Ramsay v IRC,95 arguing that the case ‘relies not on interpretative technique but on proscribing the use of a taxing statute for inequitable dealing’.96 This also helps to explain the case of UBS v HMRC,97 in which the Supreme Court gave effect to the putative purpose of the relevant legislation in spite of certain features of the statutory language that seemed to preclude this.98 In the earlier notorious case of Mayes v HMRC,99 the Court of Appeal took a different route and declined to apply purposive interpretation as a way of striking down a highly artificial tax scheme, on the basis that the statutory provisions had no obvious purpose in the context of the facts of the case.100 Given that this case was prominent in discussions leading up to the enactment of the GAAR in 2013,101 it is tempting to speculate whether the GAAR would have been thought necessary had UBS been decided first.

E. Taxpayer ‘Safeguards’ Taken separately, it is difficult to describe these recent accretions to HMRC’s powers as constitutionally significant, although they may well be inconvenient to taxpayers who happen to be caught up in them. As a collection, however, they start to resemble a wholesale rebalancing of the tax system away from the protection of private rights and towards the protection of public revenues. This observation is separate from the evaluative question of whether such rebalancing ought to be welcomed. It might nevertheless be contradicted if what are now termed taxpayer ‘safeguards’ can be shown to have improved to keep pace with increasing revenue powers. To anticipate the discussion below, it will be argued that they have not. Indeed, though there have been some important advances in taxpayer safeguarding, they are not as significant as the protection provided by local administration in the nineteenth century or by appeals and literal interpretation in the twentieth.

95 Ramsay v IRC, above n 53. 96 John Snape, ‘WT Ramsay v Commissioners of Inland Revenue (1981): Ancient Values, Modern Problems’ in Snape and de Cogan, above n 24, 243. 97 UBS AG v HMRC; DB Group Services (UK) v HMRC [2016] UKSC 13, [2016] 3 All ER 1. 98 See my critical comments in D de Cogan, ‘Defining tax avoidance: flirting with chaos, again’ (2016) 75(3) CLJ 474–77, written before I had the benefit of reading John Snape’s interpretation of Ramsay. 99 Mayes v HMRC [2011] EWCA Civ 407, [2011] STC 1269. 100 See ibid, [53], [78]. 101 The Aaronson report explained that ‘purposive interpretation, specific anti-avoidance rules and DOTAS are not capable of dealing with some of the most egregious tax avoidance schemes. Such schemes focus on prescriptive tax rules which are not susceptible to contextual interpretation …’ and illustrated the point with the Mayes case: G Aaronson, GAAR study: a study to consider whether a general anti-avoidance rule should be introduced into the UK tax system (November 2011), available at https://webarchive.nationalarchives.gov.uk/20130102175714/http://www.hm-treasury.gov.uk/d/gaar_ final_report_111111.pdf, [3.20].

Protection of Taxpayers 115

i. Human Rights Law As with the discussion of revenue powers above, the intention here is not to offer a complete review of taxpayer safeguards but to draw out some important tendencies. The first involves attempts by taxpayers to draw on human rights arguments,102 and in particular on Article 1 Protocol 1 of the ECHR: Protection of property Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

So this right can be overridden by legal provisions not only ‘in the public interest’ but also ‘to secure the payment of taxes’ regardless of the public interest. It will be noticed that the degree of protection is weaker than for other rights such as the right to life (Article 2), the prohibition on torture (Article 3) and the prohibition on slavery and forced labour (Article 4). This is not only a matter of human rights law but also of common sense. For instance, most of us would rather transfer 20 per cent, 40 per cent, 45 per cent or even more of our marginal income to the state than to suffer arbitrary detention or worse. In spite of the heavily qualified character of Article 1, Protocol 1, it is clear that the European Court of Human Rights (ECtHR) is prepared to rule in favour of taxpayers where marginal rates are so high as to amount to the confiscation of property.103 As a general rule, though, the ECtHR is extremely reticent to interfere with national decisions on the imposition, rates and rules of taxation.104 An even stricter approach is taken to Article 6 of the ECHR. In the infamous case of Ferrazzini v Italy,105 the European Court of Human Rights (ECtHR) considered whether a long delay in the resolution of a tax dispute contravened the entitlement under Article 6 of the ECHR ‘to a fair and public hearing within a reasonable time’ in regard to ‘the determination of … civil rights and obligations’. It was held that Article 6 was not even engaged on the facts. The core reason was that: … tax matters still form part of the hard core of public authority prerogatives, with the public nature of the relationship between the taxpayer and the tax authority remaining

102 The importance of human rights arguments to the protection of beneficiaries of tax policy is acknowledged in the text at n 20 but falls outside the scope of this chapter for the reasons there related. 103 See eg NKM v Hungary (App no 66529/11) [2013] STC 1104, in which a 98% marginal tax rate was held to contravene Article 1, Protocol 1. 104 Clement Endresen, ‘Taxation and the European Convention for the Protection of Human Rights: Substantive Issues: No Tax, No Society’ (2017) 45(8/9) Intertax 508–26, 519–21. 105 Ferrazzini v Italy (App no 44759/98) [2001] STC 1314 (2002) 34 EHRR 45.

116 Taxpayer Protection predominant … tax disputes fall outside the scope of civil rights and obligations, despite the pecuniary effects which they necessarily produce for the taxpayer.106

This is as clear an expression as could be imagined of the subordination of taxpayer rights to the public interest. However, even if we accept that subordination, which to be plain not everyone does,107 a blanket rule excluding taxpayers from Article 6 in most non-criminal cases is questionable. As Judge Lorenzen explained in his dissenting opinion in Ferrazzini, the normative force of the procedural guarantees in Article 6 are present in tax cases just as in other areas of law.108 It is also difficult to explain why public authority prerogatives require restrictions on rights of access to a court.109 It might be relevant that the applicant in Ferrazzini did not pay the disputed tax during the period of delay and was therefore only put to limited inconvenience.110 This could, however, have been reflected in the court’s assessment of the requirement ‘within a reasonable time’ or by minimising the remedy imposed on the Italian government. In any case Article 6 has a stronger purchase on tax administration when a ‘criminal charge’ or ‘criminal offence’ is in question.111 Moreover, the ECtHR has interpreted ‘criminal’ broadly to encompass disputes about administrative tax penalties, so that such cases benefit from the procedural protections in Article 6.112 Even in cases that fall outside this extended understanding of criminality, Article 6 may be engaged if the claimant can point to ‘civil rights and obligations’ beyond the mere existence of the taxpayer relationship. In National and Provincial v UK,113 for example, the ECtHR applied Article 6 to claims for the restitution of overpaid tax because they were ‘private law actions and were decisive for the determination of private law rights to quantifiable sums of money’.114 Besides Article 6, taxpayers have succeeded in claims that the conduct of searches by revenue authorities has contravened the right to respect for private and family life in Article 8,115 although ‘to date, no taxpayer has used Article 8 successfully to challenge the exercise of an information power by HMRC’.116 The fact that a tax provision is retroactive does 106 ibid, 1320. 107 Refer to text at n 152, below. 108 Ferrazzini, above n 105, 1326. 109 ibid, 1326. This point is made forcefully in E Plesnar, ‘Protecting our rights’ (2012) 4346 Taxation 8; cf R (on the application of UNISON) v Lord Chancellor [2017] 4 All ER 903 [66]–[85]. 110 Ferrazzini, above n 105, 1322. 111 The decision in Ferrazzini, above n 105, concerned only ‘civil rights and obligations’ and is therefore irrelevant to such cases. 112 See R Attard, ‘The Classification of Tax Disputes, Human Rights Implications’ in G Kofler, M Poiares Maduro and P Pistone (eds), Human Rights and Taxation in Europe and the World (Amsterdam, IBFD, 2011). The protections in ECHR Art 6 may not apply in full force to administrative tax penalties: see Jussila v Finland (App no 73053/01) [2009] STC 29, (2007) 45 EHRR 39, discussed in Endresen, above n 104, 517; P Baker, ‘The determination of a criminal charge and tax matters (2007) 47(12) European Taxation, 587. 113 National and Provincial Building Society v UK (App no 21319/93) [1997] STC 1466, 25 EHRR 127. 114 ibid, [97]. The taxpayers lost on the merits. 115 P Baker, ‘Taxation and the European Convention on Human Rights’ [2000] BTR 211. 116 Simon’s Taxes, [A2.313].

Protection of Taxpayers 117 not usually constitute a breach of the ECHR.117 The prospects of arguments under Article 14, to the effect that states have discriminated unjustifiably in the application of other ECHR rights, are similarly slim,118 although there have been some successes, notably a series of out-of-court settlements with the UK government in gender discrimination disputes.119 This jurisprudence, and the evolving role of the EU in protecting human rights where EU law is at stake,120 sits astride familiar and fundamental disagreements about the proper weighting of taxpayer rights and the public interest. Philip Baker, for example, is well-known to be disappointed by the reticence of the ECtHR in developing stronger protections for taxpayers.121 Clement Endresen appeals instead to the public importance of revenue-raising to justify a limited role for ECHR law in taxation. Without attempting to resolve these arguments, we might well wonder whether Endresen’s arguments provide a more forceful argument for deference by the ECtHR to national governments on tax policy than for the wholesale exclusion of a whole swathe of tax cases from the scope of Article 6.

ii. Legitimate Expectations Some other developments in taxpayer protection can be dealt with more briefly. So, first, the UK courts have developed principles of legitimate expectations under which public authorities may be held to their promises, policies or practices.122 Taxpayers have occasionally been successful in asserting this doctrine against the revenue authorities,123 although the requirements in ‘promise’ cases ‘that the taxpayer should have put all his cards face upwards on the table’ and ‘that the ruling or statement relied upon should be clear, unambiguous and devoid of

117 P Baker, ‘Some Recent Decisions of the European Court of Human Rights on Tax Matters (and Related Decisions of the European Court of Justice)’ (2016) 56(8) European Taxation 342, 346–47; Endresen, above n 104, 519. 118 Endresen, above n 104, 521. This is often because taxpayers cannot prove sufficient similarity between their circumstances and those needed to qualify for more favourable tax treatment. For example, in Burden v United Kingdom (App no 13378/05) [2008] STC 1305, 47 EHRR 857, sisters were insufficiently similar to same-sex civil partners to make differential tax treatment discriminatory for the purposes of ECHR, Art 14. 119 See Baker, ‘Taxation and the European Convention’, above n 115, 251; see also the successful invocation of ECHR, Art 14 in a disability discrimination context in Guberina v Croatia (App no 23682/13) (2018) 66 EHRR 11, discussed in Baker, ‘Some Recent Decisions’, above n 117, 349–50. 120 This may involve the enforcement of ECHR rights or an appeal to the EU’s Charter of Fundamental Rights: see Kofler, Maduro and Pistone, above 112, Part 2. 121 See eg P Baker, ‘Some recent decisions of the European Court of Human Rights on tax matters’ (2015) 55(2/3) European Taxation 107, 108. 122 There is some dispute, though of limited relevance for present purposes, as to whether the willingness of courts to hold public authorities to their prevailing policies is really a matter of ‘legitimate expectations’ or rather a free-standing principle of consistency: see Mandalia v Secretary of State for the Home Department [2015] UKSC 59, [2015] 1 WLR 4546. 123 See R v IRC ex p Unilever [1996] STC 681; Cameron v HMRC [2012] EWHC 1174 (Admin); [2012] STC 1691.

118 Taxpayer Protection relevant qualification’124 have proven to be difficult to fulfil. It is often suggested that the UK ought to draw on the more formalised systems of binding rulings in jurisdictions such as Australia in order to strengthen the protection of taxpayers who rely on HMRC’s conduct and literature.125

iii. Administrative Protections If the judicial protection of ECHR rights and legitimate expectations has been patchy, there have been some developments outside the courtroom that may help to safeguard taxpayers. Thirdly, then, there has been a gradual process of formalising the behavioural standards to which the revenue authorities are expected to adhere. In a slightly different context, we have already seen attempts to formalise the tax policymaking process.126 In 2009 the Taxpayer Charter was published, which set out what taxpayers can expect from HMRC and what is expected of them in return.127 It is in rather vague terms, explaining for instance that ‘We’ll treat you even-handedly, with courtesy and respect’.128 Nevertheless, the obligation on HMRC to report on its performance in implementing the Charter,129 and the existence of a Charter oversight committee that reports to the Board of HMRC,130 does at least provide a formalised method of monitoring and drawing attention to failures of administration. At approximately the same time, a design framework was developed for tax powers, safeguards and sanctions in the course of a major review of HMRC’s competences.131 The principles of this framework (eg, that safeguards should be clear, publicised, accessible and effective132) gained widespread acceptance but in the view of the Economic Affairs Committee have not been respected.133 It remains to be seen whether the HMRC’s new Professional Standards Committee, announced in July 2019 in order to advise the Department on the on the use of its powers, will prove more effective.134 124 R v IRC ex p MFK Underwriting Agents [1990] 1 WLR 1545, 1569. 125 See eg D Sandler, A request for rulings (London: CIOT/IFS, 1994); S Daly, ‘R. (Hely-Hutchinson) v HMRC: fairness in tax law and revenue guidance’ [2016] BTR 18, 24–25; A Taylor, ‘All bound up’ (2017) 4605 Taxation 8. 126 Refer to this volume, 83. 127 HM Revenue & Customs, Your Charter (Corporate report, updated January 2016), available at www.gov.uk/government/publications/your-charter/your-charter. 128 ibid, [1.1]. 129 Finance Act 2009, s 92. 130 Now called the Customer Experience Committee: see Economic Affairs Committee, above n 56, [15]; HM Revenue & Customs, Your Charter Annual Report: April 2017 to March 2018 (Corporate report, July 2018), available at www.gov.uk/government/publications/your-charter-annual-report-2017-to-2018/ your-charter-annual-report-april-2017-to-march-2018. 131 See HM Revenue & Customs, Modernising Powers, Deterrents and Safeguards: The Review’s Work Programme (November 2008), available at https://webarchive.nationalarchives.gov. uk/20100330150455/http:/www.hmrc.gov.uk/pbr2008/review-work-prog-2401.pdf. 132 ibid, [3.2] 133 Economic Affairs Committee, above n 56, [166]–[172]. 134 HC Deb 22 July 2019, vol 663, col 78W (Jesse Norman MP). I am grateful to Tracey Bowler for highlighting this development.

Protection of Taxpayers 119 A rather sharper edge is provided, fourthly, by an increasing range of extralegal complaint mechanisms. A surprisingly powerful example of this is ‘statutory review’, which is effectively an appeal to a team within HMRC that is independent of the original tax decision under challenge. According to the Low Incomes Tax Reform Group of the CIOT, ‘fewer than half of the decisions considered on statutory review in 2017–18 were upheld in HMRC’s favour, the remainder being varied or cancelled’.135 A taxpayer still dissatisfied after internal review processes can complain to the Adjudicator, who can assess the conduct of officials against HMRC’s own standards and if necessary order the repayment of tax to the taxpayer as well as ‘compensation … for … worry and stress’.136 The Adjudicator ‘cannot consider issues of policy or tax law or get involved in current investigations of a taxpayer’s affairs’.137 A fifth development is the individuation of the compliance experience more generally. This is an enormous topic to which entire books have been devoted.138 For present purposes, the important idea is that the building of cooperative relationships between taxpayers and revenue authorities can reduce costs for both sides, minimise unnecessary litigation and focus attention on the most important issues on which the parties disagree.139 The UK has been typical in focussing its cooperation efforts on the largest and most complex businesses.140 This is sensible in view of the high volumes of revenue at stake, but has fuelled concerns of regulatory capture and in particular ‘sweetheart deals’ in which HMRC is alleged to have been pressurised by the economic power and international mobility of large taxpayers to accept less than the full amounts due under the law.141 The converse risk is that taxpayers will be regarded as uncooperative if they challenge HMRC’s interpretation of the law, and in particular that cooperative compliance relationships will be withdrawn or restricted if taxpayers choose to litigate.142 In this light, the individuation of tax compliance is less of a taxpayer ‘safeguard’ than a more pleasant counterpart to the coercive methods of discouraging access to courts

135 Economic Affairs Committee, above n 56, [110]. 136 Bowler, above n 56, 21–22. 137 Economic Affairs Committee, above n 56, 31. 138 See eg K Bronżewska, Cooperative Compliance: A New Approach to Managing Taxpayer Relations (Amsterdam, IBFD, 2016). 139 See eg OECD, Co-operative Compliance: A Framework From Enhanced Relationship to Co-operative Compliance (Paris, OECD Publishing, 2013) 34–35. 140 ibid, 47; see also OECD, Together for Better Outcomes: Engaging and Involving SME Taxpayers and Stakeholders (Paris, OECD Publishing, 2013). 141 See eg Committee of Public Accounts, HM Revenue & Customs 2010–11 Accounts: tax disputes (HC 2010–12, 1531). An application for judicial review of a settlement of tax liabilities between HMRC and Goldman Sachs was rejected by a High Court judge, who, however, criticised the revenue authorities in strong terms: see UK Uncut Legal Action v HMRC [2013] EWHC 1283 (Admin). 142 These matters are dealt with somewhat inconclusively in OECD, above n 139, 45–53. The report insists that cooperative compliance and more traditional adversarial approaches ought to produce identical substantive tax outcomes, but also acknowledges that cooperative methods may have to be modified in cases where taxpayers stand on their statutory rights eg by refusing ‘to provide more information than is strictly required by statute’: ibid, 47.

120 Taxpayer Protection that were discussed above. A less cynical although still challenging perspective is highlighted in the recent book Building Trust in Taxation,143 which broadens the question from cooperative compliance as narrowly understood to the question of whether the tax system as a whole can be trusted and whether it matters. Whether the efforts of tax authorities to subject large businesses to OECD best practice on cooperative compliance are contributing to, or detracting from, trust in this wider sense is still something of an open question.

iv. An Asymmetric Development These safeguards should not be underestimated. The resolution of more than half of statutory review cases in favour of taxpayers is a striking statistic and the availability of ECHR Article 6 protection in an extended range of ‘criminal’ cases is also important. Even legitimate expectations doctrine, despite its relative weakness in the tax field, may exert a certain discipline on HMRC decision-making. It is difficult to escape the conclusion, however, that tax authority powers are evolving in a profoundly asymmetric manner. On the one hand, there is political capital for the government in sponsoring anti-avoidance and anti-evasion measures in each Finance Bill. Whatever the exact motivation for this,144 it has produced a much greater accumulation of revenue powers than could have been expected even a decade ago. On the other hand, taxpayer ‘safeguards’ have not only failed to keep pace with the expansion in revenue powers, but are liable to be overlooked when anti-avoidance provisions are updated. A particularly striking example is reported by Bowler and relates to the safeguard inserted into the GAAR legislation of 2013, that tax arrangements would only be treated as ‘abusive’ … if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions145

This ‘double reasonableness’ test, as can be seen, resembles the Wednesbury test for public authority unreasonableness146 rather than a simple requirement that a taxpayer has not behaved reasonably. It therefore operates as an additional level of protection for taxpayers. Bowler argues, however, that the 2016 provisions for 60 per cent penalties on failed challenges to GAAR determinations may crystallise

143 B Peeters, H Gribnau and J Badisco (eds), Building Trust in Taxation (Cambridge, Intersentia, 2017); see also S Goslinga, L van der Hel-van Dijk, P Mascini, and A van Steenbergen, Tax and Trust Institutions, Interactions and Instruments (Den Haag, Eleven International Publishing, 2018); Bräutigam, above n 21, 6. 144 At the risk of speculation, it may be a way of demonstrating that ‘big business’ can be made to pay its ‘fair share’, of providing cover for controversial measures such as expenditure cuts or of flattering the public finances by including optimistic figures for the recovery of previously uncollected liabilities. 145 Finance Act 2013, s 207(2). 146 Associated Provincial Picture Houses v Wednesbury Corporation [1948] 1 KB 223, 230: ‘if a decision on a competent matter is so unreasonable that no reasonable authority could ever have come to it, then the courts can interfere’.

Tax in the Constitution 121 before the double reasonableness test is performed, albeit the penalty only becomes payable when and if the challenge fails.147 If this interpretation of the provisions is upheld, it will rob the supposed safeguard of much of its protective effect. The impression that structural increases in HMRC powers are being ‘balanced’ with makeshift taxpayer safeguards is not materially changed by the introduction of the new tax tribunals in April 2009. Although there is much to be discussed on a detailed level,148 the tribunals broadly replicate the pre-existing jurisdiction of the general and special commissioners of income tax, the VAT and Duties Tribunal and the more specialised ‘Section 706 Tribunal’ as well as elements of the High Court’s appeal and judicial review jurisdiction. Moreover, as the Economic Affairs Committee observed, not all of the new powers of HMRC are appealable to the Tribunals anyway.149 The Tribunals are an essential part of the justice system, but they are not a panacea.

III. Tax in the Constitution A. Normative Foundations The importance of tax law to the relationship between citizen and state is not seriously disputed. Nor is the significance of taxpayer protections to the regulation of this relationship. The more difficult question is how to identify the normative foundations of the relationship in order to evaluate whether the protections are adequate. My aim here is not to pursue this task directly, but on the contrary to suggest that there are serious disagreements about these normative foundations, as indeed we have already seen in the division of the literature between taxpayer protection and beneficiary protection paradigms.150 From this perspective the positive law at any given time may not reflect any generally agreed ‘correct’ level of taxpayer protection but instead a temporary and contingent compromise of fundamentally antagonistic beliefs.151 If those beliefs, or the relevant contexts in which they operate, change, then the positive law is also likely to come under stress. To reiterate, this approach does not assist us in evaluating recent developments, but may well support the conclusion that the relationship of taxpayers and state has entered into a new period of volatility.

147 Bowler, above n 56, 15, 31–32. 148 See eg S Daly, ‘Public law in the tax tribunals and the case for reform.’ [2018] BTR 94. 149 See eg the discussion of HMRC powers to seek information from third parties without tribunal approval or appeal in Economic Affairs Committee, above n 56, [46]–[51]. 150 Refer to text at n 20. 151 This approach is not necessarily fatal to attempt to portray tax in social contract terms (see Bräutigam, above n 21, 12) but does at the very least envisage serious difficulties in identifying such a contract.

122 Taxpayer Protection On the question of underlying beliefs, we once again encounter the publicprivate tensions that underlie the division of the literature between emphases on taxpayers and on beneficiaries. At one extreme, therefore, we might focus exclusively on matters of public interest such as the fiscal stability of the state and the proper funding of public expenditure programmes. Taxpayers are both instrumental to and less important than these overriding objectives, and ‘taxpayer protection’ is an excuse for obstructing the public interest. At the other extreme, we might focus exclusively on private rights, with tax either disparaged altogether or limited to what is necessary for a ‘nightwatchman’ state and constrained by strict procedural rules.152 Most commentators would fit between these extremes, placing varying degrees of emphasis on public and private considerations when evaluating tax policy in general and individual cases in particular. At first sight, this tension is resolvable by distinguishing between pre-enactment policymaking and post-enactment administration. The first of these stages, it might be said, involves the development of ‘macro-economic policy’ in pursuit of the public interest. By the latter stage, the big-picture questions have already been answered and the focus instead turns to the mechanical application of the legislation and the clearly defined restrictions that it places on taxpayers’ rights. This is not a bad rule of thumb but is ultimately unstable, as it takes inadequate account of HMRC’s powers of collection and management and its consequent discretion in administering tax legislation.153 For better or worse, any satisfactory explanation of the protection of taxpayers has to accommodate the reality that tax administration is sometimes far from mechanical, not least because the scarcity of resources forces HMRC to make policy decisions about how to prioritise its enforcement activities.154 In the absence of a reliably neat way of compartmentalising the influence of public and private emphases within tax law, it is worth looking in more detail at what these emphases might involve. It is important to make two preliminary points. First, within the available space only a brief sketch can be given of the many and various ideas underlying our judgements as to the proper intensiveness of taxpayer protection. Secondly, despite the previous comment, it is important to resist the temptation to reduce the discussion to a set-piece opposition between the two famous books The Myth of Ownership155 and Anarchy, State and Utopia.156 This standard debate is helpful as a way of illustrating the different views that can be taken as to the relationship of tax, property and the state, but is not exhaustive 152 The similarity of this explanation to M Oakeshott’s concepts of universitas and societas is not accidental: see D de Cogan, ‘Michael Oakeshott and the conservative disposition in tax law’ in M Bhandari (ed), Philosophical Foundations of Tax Law (Oxford, Oxford University Press, 2017) 106–13. 153 Commissioners for Revenue and Customs Act 2005, s 5; Fleet Street Casuals, above n 51. 154 Refer to Fleet Street Casuals, above n 51. 155 L Murphy and R Nagel, The Myth of Ownership: Taxes and Justice (Oxford, Oxford University Press, 2002) ch 2. 156 R Nozick, Anarchy, State, and Utopia (Oxford, Blackwell, 1974).

Tax in the Constitution 123 of those views. The books are therefore mentioned but should not be taken to frame the discussion.

B. Public Emphasis The attitude described here as a ‘public emphasis’ consists, very simply, of the view that matters of public concern such as the funding of government expenditure programmes have a relatively strong normative pull, and that the protection of private taxpayer interests has a relatively weak normative pull. This attitude is likely to be informed by background political views, with left of centre observers often readiest to endorse the use of tax policy to combat poverty and other social ills, and to recognise these decisions as especially unsuited to interference by the courts through judicial review or otherwise.157 These considerations are somewhat less weighty after tax policy has been enacted into legislation, but may still inform administrative judgements such as the priority of resources. They may even be taken into account in the course of statutory interpretation, at least when the provision in question contains an identifiable policy or anti-avoidance aim. This leads to the next point, which is that a ‘public emphasis’ is not merely a background belief that informs our evaluation of tax practices, but is articulated by some of the legal texts considered in this chapter. It will be recalled that Laws LJ urged a degree of judicial deference to the administration in cases involving ‘macro-economic policy’ decisions.158 Once again, this point is unlikely to be at the forefront in cases involving the straightforward application of tax legislation to taxpayers159 but may resonate more strongly where tricky questions of administration or purposive interpretation are at stake. Meanwhile, the discussion of human rights has shown that taxpayers are protected by the ECHR but in a much more qualified way than those at risk of execution, torture, arbitrary detention and so forth. Taken together, the impression is that degree of protection deserved by a taxpayer in a given case depends on the relative weight of the competing considerations including curial deference to ‘macro-economic policy’ decisions and the

157 Though cf R v Secretary of State for Foreign Affairs, ex parte World Development Movement [1995] 1 WLR 386; AA Olowofoyeku, ‘R v Secretary of State for Foreign and Commonwealth Affairs, ex parte World Development Movement (1994): Financial Prudence, Interfering Busybodies’ in Snape and de Cogan, above n 24. 158 Refer to text at n 15. 159 A rather worrying contrast can be made with the welfare context, in which the use of ‘conditionality’ means that welfare entitlements are increasingly coming to depend on discretionary decisions of officials (ie, as to whether the claimant has adequately fulfilled the necessary conditions). Those entitlements are consequently more difficult for courts to protect than taxpayer entitlements, the existence of which does not usually depend upon a favourable exercise of administrative discretion: see Vestey v IRC (no 2) [1978] STC 567. See generally B Watts and S Fitzpatrick, Welfare Conditionality (Abingdon, Routledge, 2018).

124 Taxpayer Protection qualified rights of taxpayers under the ECHR, rather than some arbitrarily high level of blanket protection such as that afforded by the old doctrine of literal interpretation of tax statutes.160 This is, of course, entirely in line with the orthodox approach of the UK courts in public law cases involving both policy considerations and individual interests.161 A more forthright approach, as is well known, is set out in Liam Murphy’s and Robert Nagel’s seminal book The Myth of Ownership162 At the heart of Murphy and Nagel’s argument is the claim that property rights have no existence independent of the state that protects them. Moreover, the nature and scope of those rights is neither more nor less than is recognised by the legal and regulatory systems of that state, tax law included. There is no such thing as a pre-tax entitlement to property. My post-tax entitlement is the only thing that is intelligibly ‘mine’. It is not my aim here to engage with this argument in detail, but simply to observe that The Myth of Ownership is consistent with a strong recognition of the use of tax by state institutions in pursuit of the public interest, whilst treating the property rights of taxpayers as secondary and residual. The book says little at all about other possible rights of taxpayers, such as procedural rights in the course of revenue investigations. The procedural protection of taxpayers was, of course, of the essence in the Ferrazzini163 case, in which the ECtHR laid down something close to a nonjusticiability principle. That is to say, the courts should not even enter into an examination of whether tax administration is consistent with Article 6 ECHR unless criminal charges are in play, regardless of how compelling the arguments of the claimant might be. This is arguably even more extreme than the position of Murphy and Nagel in that it is not so much about refusing to recognise pre-tax property rights as withdrawing ECHR law in a significant way form the process of determining post-tax property rights.164 Even from a ‘public emphasis’ perspective

160 Though note text at n 41, above. 161 An important early example of a tax case involving both pressing policy considerations and individual rights is R v IRC, ex parte Rossminster [1980] AC 952, in which the applicants challenged the lawfulness of a raid carried out by the Inland Revenue on their premises. The application succeeded before the Court of Appeal but this was overturned by the House of Lords, who held the raid lawful despite accepting that the ‘integrity and privacy of a man’s home, and of his place of business’ was ‘an important human right’ (at 997 per Lord Wilberforce). 162 Murphy and Nagel, above n 155. 163 Ferrazzini, above n 105. 164 Of course, none of this prevents national law from providing procedural protections in a wider range of cases than Article 6. National courts are also less affected than the ECtHR by a further consideration, that is, the reticence of international bodies to intervene too closely in matters that demand a high degree of domestic expertise or that are otherwise particularly suited to domestic determination. This is often expressed in terms of the ‘margin of appreciation’ allowed to states in complying with the ECHR (see Council of Europe, ‘The margin of appreciation’, available at www.coe.int/t/dghl/cooperation/lisbonnetwork/themis/echr/paper2_en.asp) but is also visible in the emphasis placed by the majority in Ferrazzini to the ‘right of states to enact such laws as they deem necessary for the purpose of securing the payment of taxes’ (Ferrazzini, above n 105, 1320). This factor was not of ‘decisive

Tax in the Constitution 125 this is deeply dubious and it is out of step with recent UK jurisprudence on the right of access to courts.165

C. Private Emphasis The attitude described here as a ‘private emphasis’ consists of the view that a high priority should be given to the protection of taxpayer interests relative to matters of public interest. Once again, this attitude may be informed by background political views, with right of centre observers often readiest to argue for ‘small state’ conceptions of government and extraordinary protections for property rights. In line with the previous discussion, support for a ‘private emphasis’ can be found in some of the legal texts reviewed within this chapter. Perhaps most importantly, Article 4 of the Bill of Rights is consistent with a principle of consensual dealing with property rights, with Acts of Parliament but not the Royal prerogative considered sufficient to demonstrate that consent in the tax context. The overlap between Parliamentary representation and property ownership would never have been exact and, in any case, was further transformed by the removal of property and gender qualifications from 1832 onwards.166 This allowed the House of Commons to evolve into a means of representing all citizens rather than just propertied males, a trend complemented by the realignment between Commons and Lords that culminated in the Parliament Act 1911.167 Alongside these developments, a ‘private emphasis’ can be seen in the influential tradition of strict interpretation of tax statutes. It can also be discerned in attenuated form in the recognition of property rights in Article 1 Protocol 1 of the ECHR and in the widespread demands for new revenue powers to be attended with taxpayer ‘safeguards’. On a more theoretical level, a point of reference for ‘private emphasis’ approaches is the work of John Locke, who explains as follows why people agreed to join political communities in the first place: The only Way whereby any one devests himself of his natural Liberty, and puts on the Bonds of civil Society is by agreeing with other Men to joyn and unite into a Community, for their comfortable, safe, and peaceable Living one amongst another, in a secure Enjoyment of their Properties, and a greater Security against any, that are not of it.168

importance’ in deciding the case but was nevertheless of relevance. The oddity of this analysis is that the applicant had sought timely access to the Italian courts, who could presumably have decided for themselves on the proper deference to be afforded to the fiscal prerogatives of the Italian state. 165 See R(UNISON), above n 109. 166 Refer generally to Wicks, above n 3, ch 4. 167 Refer to this volume, 75. 168 J Locke, Second Treatise of Government (Oxford, Oxford University Press, 2016) VIII.95 (emphasis original). See further J Snape and J Frecknall-Hughes, ‘John Locke: Property, Tax and the Private Sphere’ in Harris and de Cogan, above n 50.

126 Taxpayer Protection As Locke emphasises in various places, the ‘great and chief End therefore, of Mens uniting into Commonwealths, and putting themselves under Government, is the Preservation of their Property.’169 The word property is used a wide sense to refer to ‘Lives, Liberties and Estates’,170 the three being intimately connected: every Man has a Property in his own Person … The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property.171

In parts of the world like England, laws were established ‘by Compact and Agreement’ that ‘regulated the Properties of the private Men of their Society; and so … settled the Property which Labour and Industry began’.172 Nevertheless, Locke’s comments on the nature of property remain relevant to tax for three interlocking reasons. First, tax represents a qualification on property rights, the protection of which in his view is the principal purpose of establishing a state in the first place. The way in which a state resolves this tension between protecting and requisitioning property is therefore central to the relationship between that state and its citizens. Secondly, in Locke’s model consent to taxation (whether through representative institutions or otherwise) must be closely connected to consent to be governed at all, given that a state that fails to respect property rights is not performing its basic function of preserving property. Thirdly, Lockeian consent to government is not notional and may be withdrawn as well as granted.173 Tax is therefore not only a source of state power but also a point of vulnerability. These arguments are likely to be more acceptable to some observers than others, but more notorious is the analogy drawn by Robert Nozick between tax and forced labour in Anarchy, State and Utopia.174 To paraphrase, the argument is that as A hours of labour could earn £B, taxing these earnings at T% is equivalent to forced labour of A x T hours.175 As with Murphy’s and Nagel’s arguments above, there is insufficient space to evaluate this argument in detail. Suffice it to say that it is popular with advocates of radical tax cuts and small government, and rather less so with those who favour extensive social spending and wealth or income redistribution. Leaving aside Nozick, the relationships sketched by Locke between the creation and stability of a state and property rights might be argued to justify a thicker conception of taxpayer protection than the mere requirement of Parliamentary

169 Locke, Second Treatise, above n 168, IX.124. 170 ibid, IX.123. 171 ibid, V.27. 172 ibid, V.35, V.45. 173 ibid, XIX. Locke reassures us that ‘such Revolutions happen not upon every little Mismanagement in publick Affairs’: XIX.225. Even ‘Great Mistakes in the ruling Part, many wrong and inconvenient Laws, and all the Slips of human Frailty will be born by the People without Mutiny or Murmur.’ 174 Nozick, above n 156. 175 ibid, 169–70.

Tax in the Constitution 127 consent to tax legislation. An example that is unlikely to provoke much disagreement even amongst those who disagree with the Lockean starting point is the application of familiar rule of law values to the tax field. After all, it is little comfort to a taxpayer that she is being subjected to tax rules agreed by Parliament, if those rules are secret, retroactive, vague, subject to internal contradiction or impossible to comply with.176 However, it is possible to imagine a more intensive protection of taxpayers that goes beyond what the courts and others are presently willing to countenance. For example, the right to ‘peaceful enjoyment’ of property under Article 1 Protocol 1 of the ECHR is heavily qualified and is subject to the ‘right of a State … to secure the payment of taxes’. Taxpayers have hitherto only been successful in invoking this right in extreme cases, as observed above,177 but what if the structure of the right were recast or reinterpreted so that taxpayers could insist on tax liabilities being proportionate to legitimate objectives such as revenue-raising, income or wealth redistribution or the discouragement of tax avoidance?178 This might be thought to put excessive limitations on a government’s freedom of action, but milder versions of the same idea are more familiar. It is well known, for example, that some jurisdictions have a constitutional principle of equality upon which taxpayers may rely, if they are being treated differently from similarly situated taxpayers and the authorities are not able to justify the difference to the satisfaction of the courts.179 Of more direct relevance to the UK is the suggestion by Edwin Simpson that certain guiding principles of UK taxation might be inferred from the decisions of the courts, such as ‘principles limiting the power of the state to tax before wealth (whether income or capital gain) has been received’.180 As Simpson acknowledges, the recognition of any such principles is likely to be controversial, as is their content and the proper extent of judicial protection.181 At the least, though, his suggestion is useful in pointing to a way in which the UK courts – if they were so minded – might choose to develop principles of taxpayer protection without necessarily relying on ECtHR jurisprudence and the HRA 1998.182 176 Especially if the rules were enacted at the request of HMRC or HMT without full scrutiny by Parliament: see further Ch 3 Refer to this volume, 93. See also L Fuller, The Morality of Law, 2nd edn (New Haven, Yale University Press, 1969) ch 2. 177 Refer to text at n 103, above. 178 This type of analysis is familiar from EU law: see eg Case C-446/03 Marks & Spencer plc v Halsey [2005] ECR I-10837 [2006] Ch 184, in which the UK’s group relief regime for corporation tax was held to be a restriction on the EU freedom of establishment and disproportionate to some admittedly legitimate objectives. 179 See eg the discussion of Dutch law in HLM Gribnau, ‘Equality, legal certainty and tax legislation in the Netherlands. Fundamental legal principles as checks on legislative power: A case study’ (2013) 9(2) Utrecht Law Review, 9(2) 52–74. 180 E Simpson, ‘The Ramsay principle: a curious incident of judicial reticence?’ [2004] BTR 358, 370. 181 The degree of protection could range from treating a principle as a ‘relevant consideration’, which the tax authorities would be bound to take into account, to a ‘proportionality’ analysis that examined whether a breach of the principle was proportionate to a legitimate government objective. 182 Note HRA 1998, s 2(1)(a), which obliges UK courts to take into account relevant jurisprudence of the ECtHR when determining questions relating to ECHR rights.

128 Taxpayer Protection

D. Conciliating Disagreement Few would seriously dispute that tax is intimately concerned with both the funding of government and the protection of property and other rights. What there is real disagreement about is which takes priority. Moreover, at least on one level, the disagreement is binary. Either public interests or private interests come first. Speaking for myself, I would be content to adopt a public emphasis, subject to as thorough a protection of taxpayer rights as is possible. I would like to believe that this is a reasonable and moderate position, but the point remains that it is radically different from a private emphasis subject to as through as possible a pursuit of the public interest. These two views, though close in practice, are nevertheless difficult to reconcile in principle. It is well known, of course, that many tax specialists and non-specialists take far less conciliatory positions on these questions. The consequence is that, even if ‘taxation is theft’ and ‘abolish private property’ extremes are excluded, it is extremely difficult to point to any fundamental consensus on what taxpayer protection ought to be achieving. As already suggested, this frames positive law not as implementing an agreed or unchanging principle of taxpayer protection but instead as a contingent and temporary conciliation of conflicting principles that are rooted in essentially incompatible political positions. If there are changes in the balance of political and social attitudes towards the proper treatment of taxpayers, or contextual developments such as the introduction of self-assessment or increased global mobility, then that positive law may no longer be able successfully to perform its conciliation function. This would start to explain the periodic shifts seen in the prevailing model of taxpayer protection over the last two centuries. In each instance, the ‘old’ approach had become incapable of conciliating competing normative views, and had to be replaced with a ‘new’ approach that was less incapable under the changed circumstances. It is tempting to speculate whether we are at the threshold of yet another great shift. Perhaps the prevalent mode of taxpayer protection, rooted in statutory detail, anti-avoidance principles and purposive interpretation, is no longer capable of conciliating public-private tensions in the face of rapidly accumulating revenue powers. If this is right, then what happens next? A pessimistic view is that the ability of taxpayers to exit the jurisdiction in the context of economic globalisation by moving assets, activities and even living arrangements to lower-tax jurisdictions is the new form of taxpayer protection, albeit only for those with the necessary means. On a more positive note, one means of reasserting taxpayer protection without returning to literal interpretation and its wilful blindness to the public interest would be to develop ECHR doctrine in a cautious and incremental way. It was suggested above that one option would be to strengthen the degree of protection provided under Article 1 Protocol 1 ECHR, but a much more straightforward and urgent action would be simply to reverse the non-justiciability component of the Ferrazzini case.183 If the ECtHR is unwilling to take this step, then domestic

183 Ferrazzini,

above n 105.

Interim Conclusions 129 courts should treat it as pertaining to the margin of appreciation and reverse it themselves as a matter of national law. The beauty of this solution is that it would be open to the courts broadly to replicate existing outcomes by affording HMRC and other relevant agencies a high degree of deference in respect of their justifications for infringing the Article 6 ECHR rights of taxpayers. However, if the trend towards asymmetric increases in revenue powers continues, the courts will have at their disposal a powerful and well-understood means of protecting taxpayers whilst continuing to calibrate and minimise their interference in ‘macro-economic’ decision making. There may even be some existing powers, such as the restrictions on the right of access to courts involved in the follower notice scheme or the amended GAAR legislation, that might fall foul of Article 6 already, were Ferrazzini to be reversed or ignored.

IV. Interim Conclusions As with the previous two chapters, these interim conclusions are restricted to some brief comments on the basic claims outlined in chapter one.184 First, there is an undoubted overlap between the concerns of tax and constitutional lawyers with respect to taxpayer rights and protections. Secondly, it is not clear that the erosion of taxpayer protections reflects constitutional change so much as the increased public awareness of tax avoidance and the perceived urgency of providing HMRC with additional techniques for minimising the leakage of revenues. Thirdly, it is suggested that taxpayer protection does indeed reflect on the constitution more generally as being a key site of interaction between individuals and the state. If the taxpayer-state relationship is becoming more authoritarian, as is plausible based on recent developments, then this may offer at least an early warning that the status of individual rights is in decline more generally. However, this conclusion may itself rest on our deeper beliefs about taxation. If we agree with Murphy and Nagel that tax is just another area of regulation to which we are subject before we are entitled to anything at all, then we may well be more sceptical whether developments in tax administration have wider significance. Moving to the fourth claim, the material reviewed in this chapter suggests that the relationship between the protection of taxpayers and the wider treatment of individuals within the constitution is pre-eminently dependent on context, with the methods of conciliating ‘public’ and ‘private’ emphases undergoing several step-changes over the last two centuries. Fifthly, it is already well-known that the treatment of taxpayers can shed light on the relationship of citizen and state, and vice versa, and the present chapter supports this point.

184 Refer

to this volume, 27.

5 Europe and Beyond This chapter considers the relevance to UK constitutional law of EU and international coordination on tax matters. This is on the face of things an enormous topic, as can be appreciated from the most cursory overview of recent developments. The repercussions of the OECD’s Base Erosion and Profit Shifting (BEPS) project and the UK’s vote to leave the EU are likely to keep a small army of tax specialists occupied for years to come. This is not to mention the increasing attention being paid to the influence of international cooperation efforts upon non-OECD countries, and indeed the reverse influence of non-OECD countries upon international standards.1 The extent and character of EU oversight over the direct tax regimes of member states is also in a state of flux, with the Anti-Tax Avoidance Directive (ATAD) of 20162 requiring further changes to UK law3 and discussions continuing about the possibilities for a Common Consolidated Corporate Tax Base.4 These often fast-moving developments are accompanied by an enormous and growing body of academic literature, ranging from detailed technical analyses to conceptual and theoretical studies within the legal discipline alone. As always, the aim of this chapter is to interrogate the five claims about the constitutional role of taxation that were set out in chapter one. In order to confine this task within reasonable bounds, the scope of the present chapter has been limited in three ways. First, there is no attempt to present a comprehensive overview of European or international taxation, even if this were possible within a single chapter. Secondly, the decision of UK voters on 23 June 2016 to leave the EU has precipitated an extremely unpredictable series of events. It is argued below that tax considerations have played an important role in the unfolding of these events, but this claim is grounded in conceptual features of the relevant taxes as well as events that have occurred before the date of writing of this book. The temptation to speculate about future possibilities is resisted, even though it 1 See eg E Baistrocchi, ‘Introduction’ in E Baistrocchi (ed), A Global Analysis of Tax Treaty Disputes (Cambridge, Cambridge University Press, 2017). 2 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market [2016] OJ L193/1 (ATAD). 3 See eg HM Revenue & Customs, Anti-Avoidance Directive about controlled foreign companies (Guidance, July 2018), available at www.gov.uk/government/publications/anti-avoidance-directiveabout-controlled-foreign-companies-and-eu-exit/anti-avoidance-directive-about-controlled-foreigncompanies-and-eu-exit. 4 Refer to Council of the European Union, Common consolidated corporate tax base (Policies, revised March 2019), available at www.consilium.europa.eu/en/policies/ccctb/.

International Law in the UK Constitution 131 might offer further insights into the questions raised by chapter one. The third limitation on this chapter is that it focusses on the domestic constitution. There might admittedly be much to say from an EU constitutional perspective, or on the now evergreen question of whether a coherent body of law can be elicited from the network of double tax conventions and initiatives of supranational organisations that inhabit the international tax field.5 These matters must nevertheless await a future occasion. The next section of this chapter provides a brief review to some general legal debates around the domestic status of international law, national sovereignty, the claim that globalisation is hollowing out the state and the application of EU law before and after Brexit. This is followed by a more detailed examination of recent developments in international and European taxation, noting in particular the relative ease with which these have been accommodated by the UK constitution. The penultimate section is devoted to Brexit and provides a short overview of relevant tax issues before focussing on the question of customs duties and the Irish border. The chapter concludes with some brief comments on themes arising from the evidence reviewed, followed by preliminary observations on the five basic claims set out in chapter one.

I. International Law in the UK Constitution The purpose of this section is to set the scene for the discussion of tax issues below, and the reader is referred to specialist textbooks for a comprehensive review of this topic. The main points can be dealt with relatively quickly. The starting point is that the UK has a ‘dualist’ approach to the recognition of international law. This means that international law is not automatically binding in the domestic UK legal system but may be ‘incorporated’ under an Act of Parliament. Once incorporated into domestic law, international law need not be interpreted and applied as if it were domestic in origin. For instance, where international courts have developed characteristic modes of interpretation, these may be applied by domestic courts in relevant cases even where this diverges from their usual methods.6 The UK’s approach can be contrasted with ‘monism’, whereby binding international law is in principle given immediate recognition within the domestic legal system. 5 See eg RS Avi-Yonah, International Tax as International Law: An Analysis of the International Tax Regime (Cambridge, Cambridge University Press, 2009). 6 In tax law, the point of reference is IRC v Commerzbank AG [1990] STC 285, in which Mummery J refers at 298 to the Vienna Convention on the Law of Treaties, Arts 31 and 32. The case is discussed in P Harris and D Oliver, International Commercial Tax (Cambridge, Cambridge University Press, 2010) [1.3]; B Cleave, ‘The UK’ in M Lang, P Pistone, J Schuch and C Staringer (eds), The Impact of the OECD and UN Model Conventions on Bilateral Tax Treaties (Cambridge, Cambridge University Press, 2012) [36.1]; P Baker, ‘The Commerzbank Litigation (1990) UK Law, Tax Treaty Law and EU Law’ in J Snape and D de Cogan (eds), Landmark Cases in Revenue Law (Oxford, Hart Publishing, 2019) [II].

132 Europe and Beyond As Feldman points out, the distinction between dualism and monism is more pronounced in theory than in practice.7 This is because it is usually desirable even for monist states to apply constitutional ‘filters’ which regulate the incorporation of international law within domestic systems, make its application predictable and leave room for governments to protect important national values and objectives. The UK Parliament has travelled some distance in the opposite direction by making very wide provision for the incorporation of certain types of international law. Notable examples include the law of the EU and its predecessors in the ECA 1972, European Convention of Human Rights (ECHR) law in the Human Rights Act (HRA) 1998 and certain decisions of the UN in the United Nations Act 1946.8 Even where international law has not been incorporated, courts may nevertheless refer to it when interpreting other domestic legislation, assuming in the absence of contrary evidence that Parliament intended to legislate in compliance with the UK’s international obligations.9 A particular problem arises when Parliament incorporates a body of international law but subsequently enacts inconsistent legislation. The Diceyan account of sovereignty, discussed in more detail in chapters three and four,10 provides a clear answer. Parliament has the right to enact legislation on any topic but may not bind its successors. Hence the later provisions should prevail in the event of conflict, even when the earlier provisions are not expressly repealed. In the present context, however, this doctrine of ‘implied repeal’ could generate a great deal of uncertainty and inconvenience. At worst, it could allow the domestic legal status of internationally-agreed rules to be placed in doubt by an indefinite number of more-or-less accidentally conflicting Acts of Parliament. These types of concern have inspired a new approach to sovereignty whereby the courts may recognise certain provisions as holding ‘constitutional’ status.11 The consequence is that such provisions are immune from implied repeal, although there is nothing to stop Parliament from providing for their express repeal either in full or to the extent of any inconsistency. This theory of constitutional legislation rests on the foundations of earlier developments, in particular in EU and human rights law. The HRA 1998 is deliberately structured in a way that resists implied repeal. As will be recalled from the 7 D Feldman, ‘The internationalisation of public law and its impact on the UK’ in J Jowell and C O’Cinneide (eds), The Changing Constitution, 9th edn (Oxford, Oxford University Press, 2019) 127 ff. 8 ibid, 151 ff. 9 ibid., 156. 10 Refer to this volume, 65, 97. 11 Thoburn v Sunderland City Council [2002] EWHC 195 (Admin), [2003] QB 151. See also R(HS2 Action Alliance) v Secretary of State for Transport [2014] UKSC 3, which suggests that an order of priority may sometimes have to be worked out between conflicting constitutional provisions: see M Elliott, ‘Reflections on the HS2 case: a hierarchy of domestic constitutional norms and the qualified primacy of EU law’ (UK Constitutional Law Blog, 23 January 2014), available at https://ukconstitutionallaw. org/2014/01/23/mark-elliott-reflections-on-the-hs2-case-a-hierarchy-of-domestic-constitutionalnorms-and-the-qualified-primacy-of-eu-law/.

International Law in the UK Constitution 133 previous chapter,12 section 4 allows the courts to issue a declaration of incompatibility when legislation cannot be interpreted consistently with ECHR rights under section 3. This in turn triggers a fast-track procedure under section 10 whereby Ministers may use secondary legislation to remedy the inconsistency. This framework is neat because it creates a conceptual separation between incompatibility of new legislation with ECHR rights and implied repeal of the HRA itself. The incompatible legislation takes primacy, as demanded by Diceyan orthodoxy, but without endangering the application of the HRA to future Acts of Parliament or administrative acts. The ECA 1972, which has incorporated the law of the EU and its predecessors, is less explicit about the resolution of conflicts but the words ‘from time to time’ suggest that the Act was not intended to be impliedly overruled by every piece of inconsistent subsequent legislation: All such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties, … as in accordance with the Treaties are without further enactment to be given legal effect or used in the United Kingdom shall be recognised and available in law, and be enforced, allowed and followed accordingly …13

The full potential of the ECA to upset the doctrine of implied repeal was not widely understood at first, but in the 1990 case of Factortame (no 2)14 it was confirmed by the House of Lords that Acts of Parliament must be disapplied to the extent of their inconsistency with directly effective EC law, regardless of when they were enacted. The more recent debates about legislation with constitutional status might be seen as a working through of Factortame (no 2), of whether the decision represented a one-off pragmatic response to the realities of EEC membership or a broader qualification on the doctrine of implied repeal. As we have learned in great detail recently, none of this prevents the ECA from being repealed expressly!

A. Sovereignty It is sometimes alleged that the growing influence of global trade and supranational regulation is placing limits on national sovereignty or even threatening the continued existence of states in the late twentieth century mould.15 To some commentators, this presents opportunities such as the prospect of more effective

12 Refer to this volume, 100. 13 European Communities Act (ECA) 1972, s 2(1). 14 R v Secretary of State for Transport Ex p. Factortame Ltd (No.2) [1991] 1 AC 603. 15 See eg JL Cohen, Globalization and Sovereignty: Rethinking Legality, Legitimacy, and Constitutionalism (Cambridge, Cambridge University Press, 2012) Introduction and AJ Cockfield, ‘Introduction: The Last Battleground of Globalization’ in AJ Cockfield (ed), Globalization and Its Tax Discontents: Tax Policy and International Investments (Toronto, University of Toronto Press, 2010) for helpful references to general legal and tax literature respectively.

134 Europe and Beyond protection of human rights.16 It is equally undeniable that not everyone shares this optimistic perspective, and indeed fears of loss of sovereignty formed one of the main themes in the ‘Leave’ campaign preceding the 2016 referendum on the UK’s membership of the EU.17 The essence of this argument was that the EU’s longrepeated ambitions for ‘ever-closer’ union were threatening to change the nature of the UK state permanently, without the consent of UK citizens and to the detriment of democratic processes more generally.18 The problem with the word ‘sovereignty’ is that it is capable of bearing a variety of meanings and is accordingly quite confusing unless used with care. The reader is referred elsewhere for a more comprehensive survey,19 but it is worth drawing out a few illustrative points. First, as Loughlin points out, the legal right and the real-world ability to do something are not the same.20 The classic example of this is an extra-territorial provision that has no hope of being enforced. It is valid as a matter of domestic law but is of limited practical significance. The converse may also hold, so that states might enhance their ability to achieve practical outcomes by subjecting themselves to legal limitations.21 Secondly, Parliamentary sovereignty in the Diceyan sense of being able to legislate on any topic does not exhaust the legislative competences of UK institutions. As was discussed in chapter two, devolved institutions have law-making powers, as does the government under the residual powers of the Royal prerogative.22 Thirdly, the recognition by domestic law of Parliamentary sovereignty and the legislative competences of other institutions is a different question from what is legally acceptable or politically advisable at an international level. As we shall see, some of these general problems are replicated in the tax field. The fact that the CJEU has surprised many with the depth of its interventions on direct tax matters only tells us a limited amount about whether the ‘tax sovereignty’ of member states has been eroded, let alone whether it is desirable, possible or even intelligible to recapture sovereignty by leaving the EU. 16 See eg the discussion of cosmopolitan theory in Cohen, above n 15, 2. 17 Though a decision was made to use the more direct word ‘control’ in the place of ‘sovereignty’: see M Wallace, ‘Brexit’s war of the words: Why Dominic Cummings used “control” over “sovereignty” in the Leave campaign’, iNews, 9 January 2019, available at https://inews.co.uk/opinion/brexit-languagedominic-cummings-sovereignty/. See also KA Armstrong, Brexit Time: Leaving the EU – Why, How and When (Cambridge, Cambridge University Press, 2017) Part II. 18 For a particularly clear expression of this point of view, see A Mitchell, ‘The European Union versus democracy’, Brexit Central, 1 June 2018, available at https://brexitcentral.com/ european-union-versus-democracy/. 19 See eg R Rawlings, P Leyland and A Young (eds), Sovereignty and the Law: Domestic, European and International Perspectives (Oxford, Oxford University Press, 2013). 20 M Loughlin, ‘Why Sovereignty?’ in Rawlings, Leyland and Young, above n 19, 39. 21 See eg J Snape, The Political Economy of Corporation Tax (Oxford, Hart Publishing, 2011) 84. 22 The fact that these legislative powers are vulnerable to an exercise of Parliamentary sovereignty, as seen notably in the Miller (no 1) case (R (Miller) v Secretary of State for Exiting the European Union [2017] UKSC 5, [2017] 1 All ER 593), does not mean that sovereignty is an especially helpful way of analysing them in the meantime: see further ‘A John Morison, ‘“A Sort of Farewell”: Sovereignty, Transition, and Devolution in the United Kingdom’ in Rawlings, Leyland and Young, above n 19.

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B. Hollowing Out the State A similar set of arguments surround the claim that states are being ‘hollowed out’ by a combination of supranational governance mechanisms, cross-border mobility and devolution initiatives. Even at the national level, functions once performed by civil servants have long since between transferred to regulatory bodies designed to sit at arms’ length from Ministers.23 Some services have been privatised altogether, sometimes subject to more or less intensive regulatory regimes. Without more, this line of argument is vulnerable to similar objections to claims that sovereignty have been eroded. That is, that state capacity may be strengthened by devolution, delegation and international cooperation,24 and that Parliament retains a sovereign right to legislate even on matters usually allocated to other institutions and has exercised that right successfully in recent years.25 Moreover, as discussed in the previous chapter, HMRC’s administrative powers have grown exponentially over recent years, which suggests either a strong resistance to or an absence of hollowing out! A more sophisticated argument is that, even if the proliferation of supranational, subnational and arms-length authorities does not necessarily subtract from state power, it does tend to disrupt previously accepted hierarchies. For example, in a formal sense the Scottish devolved institutions are subordinate to the UK. As is discussed at more length in chapter two,26 they were established and their scope defined by UK legislation, their decisions are vulnerable to UK Parliamentary sovereignty and there are many policy aims that they cannot achieve without at least some coordination with central government. However, there is more at stake than simple bilateral relationships between Edinburgh and Westminster. There are also direct legal, political and administrative relationships between Scottish and supranational institutions. The most obvious are the direct obligations on the Scottish Parliament and Government to protect ECHR rights and to comply with EU law at least prior to Brexit.27 Some sub-national regions even enjoy independent representation for the purposes of certain EU decisions, as evidenced by the delay caused to the EU-Canada trade agreement in order to address Walloon concerns.28 There are also forums comprising representatives of each of the devolved nations, and of course working relationships between Scottish and UK officials. These cross-cutting networks form a counterpoint to the idea of a strict

23 Not even the tax authorities have been immune from these trends: see P Tuck, D de Cogan and J Snape, ‘A tale of the merger between the Inland Revenue and HM Customs & Excise’ in P Harris and D de Cogan (eds), Studies in the History of Tax Law, vol 9 (Oxford, Hart Publishing, 2019). 24 Refer to n 21. 25 Refer to n 22. 26 Refer to this volume, 33. 27 Scotland Act 1998, ss 29(2)(d), 57(2). See also Christian Institute v Lord Advocate [2016] UKSC 51. 28 See eg A Beesley, ‘Belgium’s Wallonia relents, advancing EU-Canada trade deal’, Financial Times, 28 October 2016, available at www.ft.com/content/c4474d50-df14-3757-8e1a-b14e72f5c0f4.

136 Europe and Beyond hierarchy between the supranational, national and subnational, pointing instead to areas of overlapping responsibility in which sovereignty arguments are not usually the first resort. There is obvious scope for tension between these two frameworks. On the one hand, short of a reassertion of Parliamentary sovereignty, it will not always be clear which institutions are likely to prevail in the event of conflict. The answer may depend at least as much on considerations such as acceptability and enforceability as on the precise legal status of their respective decisions. For instance, a legal rule of international origin without a credible enforcement mechanism may be much less significant in practice than a standard of professional ethics that has no particular legal status but cannot easily be avoided. The boundaries between hard law, soft law and non-law can be quite thin in this complex multi-level context. On the other hand, the treatment of devolved matters in Miller (no 1)29 demonstrates that the possibility of Parliament using legislation to pre-empt or overrule other institutions is more than merely theoretical.30 The way in which the complexity of multi-layered governance and the simplicity of Parliament’s legislative competence interact might tell us a great deal about a particular field of policy. In the tax field, of course, the position of the central institutions of state is bolstered by the rule in Article 4 of the Bill of Rights that it is illegal to levy taxes without the consent of Parliament, not to mention the various centralising tendencies discussed in chapter three. In sum, there is some force to the view that the central institutions of Westminster have been forced to share control of areas of policy once considered to be within their exclusive domain. It has been seen throughout this book that relationships between national, devolved and international institutions are changing, sometimes very rapidly. All the same, the terminology of ‘hollowing out’ is at best a convenient summary of a more complex set of developments that in some respects may even strengthen the position of state-level institutions.

C. The UK’s Vote to Leave the European Union The consequences of the decision of the UK electorate to leave the EU have already inspired enough literature to fill a small library, with more no doubt imminent as those consequences become clearer. The interaction between the referendum outcome and the devolution settlements has already been discussed in chapter two.31 The aim of the next few paragraphs, and the corresponding 29 Miller (no 1), above n 22; Refer to this volume, 34. 30 It is not essential to this point that Parliament is strictly sovereign in the Diceyan sense. We could agree with the argument in TRS Allan, The Sovereignty of Law (Oxford, Oxford University Press, 2013)) that Parliament’s legislative powers are subject to legally enforceable limitations and still recognise the potential for primary legislation to be used as a trump card in otherwise complex systems of government. 31 Refer to this volume, 34.

International Law in the UK Constitution 137 coverage of tax issues further below, is to draw out some of the most important implications of the vote for the status of supranational regulation within the domestic UK legal system. The status of EU law in the UK legal system has long presented a conundrum to constitutional lawyers. This arises from the underlying inconsistency between the UK doctrine of implied repeal and the CJEU’s own understanding of EU law as a supreme system of law that takes precedence over inconsistent national principles.32 The matter came to a head in Factortame (no 2),33 in which the House of Lords was faced with an inconsistency between new UK legislation and old EEC law. As we have already seen, the court took the highly unconventional step of disapplying the UK legislation to the extent of the inconsistency, rather than treating the EEC rules or even the ECA 1972 as impliedly repealed. This prompted a robust debate on the domestic constitutional status of EEC/EU law34 and indeed provides some weight to the view that some constitutional statutes such as the ECA 1972 can be protected by the courts from implied repeal.35 The difficulty with that interpretation is that the CJEU and its predecessors have rejected the possibility of express repeal without leaving the organisation altogether: The transfer by the states from their domestic legal system to the community legal system of the rights and obligations arising under the treaty carries with it a permanent limitation of their sovereign rights, against which a subsequent unilateral act incompatible with the concept of the community cannot prevail.36

The sense that EU membership has posed a unique challenge to UK constitutional understandings is supported by the fact that the outright disapplication of primary legislation in Factortame (no 2) has not yet been replicated in any other context.37 If the UK’s accession to the European Communities in 1972 has caused headaches for legal theorists, the same and more can be said of the vote to leave in 2016. One view is that the dualist approach to international law allows for a strict delineation between, on the one hand, the decision to conclude, modify and withdraw from treaties, and on the other hand, the decision to give domestic legal force to treaty provisions. In the UK the former task usually falls to the government in pursuit of the Royal prerogative, whereas the latter is a matter for Parliament. It follows that the government could withdraw the UK from the EU treaties without first securing Parliamentary consent. It would, of course, be up to the legislature to decide

32 See eg Case C-6/64 Costa v ENEL [1964] ECR 585. 33 Factortame Ltd (No.2), above n 14. 34 See eg W Wade, ‘Sovereignty – revolution or evolution’ [1996] LQR 568, 574, in which the author described the outcome of Factortame (no 2) as a ‘technical revolution’. 35 Refer to text at n 11, above. 36 Costa, above n 32, 594. 37 See E Wicks, The Evolution of a Constitution: Eight Key Moments in British Constitutional History (Oxford, Hart Publishing, 2006) 49–51 for discussion of claims that the Acts and Treaty of Union between England and Scotland might be interpreted in a similar way, as ‘constituent documents removable only by means of constitutional revolution’ (50).

138 Europe and Beyond whether to repeal the provisions of the ECA 1972 that incorporate the treaties into UK law, but the ambulatory wording of section 2(1) may make this otiose. The domestic recognition of ‘[a]ll such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties’ has no content if the government has already successfully withdrawn from those treaties. This analysis was accepted by Lord Reed, in the minority in Miller (no 1),38 but the majority adopted a more complex position that has given rise to a great deal of debate. They held that the ECA had done more than establish a framework by which EU law is incorporated into the UK. Instead, it created a new source of domestic law, so that when the EU institutions promulgate directly effective provisions, this should not be seen merely as international law given effect by the ECA 1972 but in a direct sense UK domestic law.39 As domestic legal rights cannot be removed by the government pursuant to the Royal prerogative, EU legal rights cannot be removed in this way either.40 The practical effect of this decision was that the government was forced to seek Parliamentary approval for the formal notification of the UK’s decision to leave the EU under Article 50 TEU. This was achieved in the short European Union (Notification of Withdrawal) Act 2017. It remains to be seen whether the courts choose to extend the principle of the majority decision in Miller (no 1) outside the EU context, perhaps in aid of a broader attack on dualism. The reader is referred elsewhere for a detailed review of the constitutional implications of Brexit,41 but one immediate effect has been a much wider public discussion of constitutional questions than is usually possible. For instance, the difference between Parliament’s technical power to legislate on any topic and the substantive ability of the UK’s central institutions to select and achieve policy outcomes has long been familiar to constitutional scholars.42 The extent to which this realisation has permeated wider society is illustrated by a Daily Mail headline in March 2019 that begins ‘Brexit was about taking back control … instead the UK spiralled out of control’.43 The Daily Mail may have changed editorship six months previously but it was still surprising to see such ideas being aired prominently in a publication traditionally so hostile to the EU.

38 Miller (no 1), above n 22, [179]–[197]. 39 ibid, [61]–[66]. 40 ibid, [74]–[93]. 41 A good start is M Elliott, J Williams and AL Young (eds), The UK Constitution after Miller: Brexit and Beyond (Oxford, Hart Publishing, 2018). 42 See eg P Allott, ‘Sovereignty: a false friend in the defence of national identity’, LSE Brexit, 27 August 2018, available at https://blogs.lse.ac.uk/brexit/2018/08/27/sovereignty-the-false-friend-atthe-heart-of-brexiters-identity/; see also n 20 above. 43 J Adams and T Stickings, ‘“Brexit was about taking back control … instead the UK spiralled out of control”: EU leaders warn Britain it will need “good reason” for delay and to prepare for no deal as they’ve done “everything possible” to agree a plan’, 12 March 2019, available at www.dailymail.co.uk/ news/article-6801121/Britain-need-credible-justification-Brexit-delay-warns-Donald-Tusk.html.

International Tax 139

II. International Tax A. A Strange Stasis in the Constitution At the heart of current anxiety about the constitutional role of international tax lies a simple question of whether globalisation is forcing states fundamentally to recalibrate why, how and to what extent they impose tax charges on mobile tax bases. This is of key relevance to the OECD’s BEPS project, discussed further below, but first it is worth making two preliminary points: that changes in the ‘tax mix’44 over time are relatively common and that in any case the UK’s ‘constitutional filters’ allow dramatic developments in the global context to be accommodated within existing legal and political structures rather than threatening their existence. The problems of customs duties and the Irish border raise exceptional considerations and are dealt with separately. It does not take a close reading of Schumpeter or a degree in feudal history to appreciate that the content and administration of tax systems depend heavily on contextual factors such as warfare, urbanisation, industrialisation, transport networks and trading practices.45 Nevertheless, the examples of feudal and socialist societies remind us that some methods of revenue raising are so remote from the usual understanding of ‘taxation’ for us to wonder whether the word should be used at all.46 Even if we confine ourselves to post-feudal history, it is clear that considerations of administration, military necessity, political ideology and policy preferences have inspired major shifts in the reliance of the UK and its predecessors on different methods of taxation. For instance, Brewer notes a movement in the early eighteenth century from land taxation to excise duties, which seems to have reflected excise officers’ reputation for skill and relative incorruptibility.47 Another example is the increasing prominence of income tax as a proportion of public revenues in the decades following the outbreak of World War I, which Daunton attributes to wartime revenue needs but also to ‘political difficulties over free trade and the disinclination to impose taxes on working-class consumption’.48 The VAT was introduced in 1973 as a condition of EEC membership but

44 That is, the combination of different methods and sources of tax that go to make up the tax system as a whole. 45 For a classic expression of this point, see C Tilly, Coercion, Capital, and European States, AD 990-1992 (Cambridge MA, Blackwell, 1990) chs 3 and 4. 46 JA Schumpeter, ‘The Crisis of the Tax State’ in Joseph A Schumpeter, The Economics and Sociology of Capitalism, R Swedburg (ed) (Princeton, Princeton University Press, 1991) 102–08, 130–31, 135. See also J Snape, ‘The “Sinews of the State”: Historical Justifications for Taxes and Tax Law’ in M Bhandari (ed), Philosophical Foundations of Tax Law (Oxford, Oxford University Press, 2017). 47 J Brewer, The Sinews of Power: War, Money and the English State, 1688–1783 (London, Unwin Hyman, 1989) 101–14. 48 M Daunton, Just Taxes: The Politics of Taxation in Britain, 1914–1979 (Cambridge, Cambridge University Press, 2009) 59.

140 Europe and Beyond subsequently gained in prominence,49 partly because rises in VAT rates aligned with Mrs Thatcher’s ambitions to reduce income and corporation tax rates significantly.50 One of the most widely discussed challenges to modern tax systems involves their ability to sustain revenues from corporate income taxes (CITs) within an environment of capital mobility, rate competition between jurisdictions and widespread avoidance. The global trend towards lower CIT rates over recent decades51 reinforces these concerns, though the fact that the average percentages of total tax and GDP raised by CIT have slightly risen since the year 200052 cautions us not to place too much emphasis on headline rates. Another consideration is that CIT is not, and has never been, a dominant source of income in the UK and prior to 1915 was essentially a collection mechanism for the individual income tax.53 The modern corporation tax dates from 196554 and has typically raised just short of 10 per cent of overall tax revenues,55 though its political importance in showing that businesses are paying a ‘fair share’ is probably somewhat greater.56 Assuming for the moment that falling CIT rates really do present a serious problem, there are two main types of response open to policymakers. The first is to accept that the ‘tax mix’ changes over time and therefore to plan for a heavier reliance on other sources of finance, new models of taxation57 or even a lower overall tax take. None of these solutions would be unique either to the UK or to the present time-period. The second is to take steps to shore up the existing system, through expedients such as enhanced information exchange systems between jurisdictions, measures to curtail the activities of tax havens, stronger anti-avoidance measures and so forth. 49 See T Clark and A Dilnot, Long-term trends in British taxation and spending, IFS Briefing Note No. 25, June 2002, available at www.ifs.org.uk/bns/bn25.pdf, 6. 50 M Daunton, ‘Creating a Dynamic Society: The Tax Reforms of the Thatcher Government’ in M Buggeln, M Daunton and A Nützenadel (eds), The Political Economy of Public Finance Taxation, State Spending and Debt since the 1970s (Cambridge, Cambridge University Press, 2017) 49. 51 OECD, Corporate Tax Statistics, First Edition (Paris, OECD Publishing, 2019) 8–13. 52 ibid, 3, where it is explained that CITs raised on average 12.0% of total tax revenues in 2000 and 13.3% in 2016, with the corresponding figures for GDP being 2.7% and 3.0% respectively. 53 The first significant step towards a tax on corporate profits in their own right was the establishment of the munitions levy in the Munitions of War Act 1915, ss 4 and 5, closely followed by the Excess Profits Duty in the Finance (no 2) Act 1915, Part III and subsequently by the more recognisable Corporation Profits Tax in Finance Act 1920, Part V. 54 Finance Act 1965, Part IV. 55 OECD, above n 51, 4; T Pope and T Waters, A survey of the UK tax system, IFS Briefing Note BN09, November 2016, available at www.ifs.org.uk/bns/bn09.pdf, 39. 56 See eg Tax Justice UK, ‘Fairshare: Increasing company tax contributions’, available at www. taxjustice.uk/fairshare.html. As is often pointed out, the evidence is inconclusive as to whether the burden of corporate income taxes is primarily borne by shareholders or by others such as customers, suppliers or employees, which makes the identification of a ‘fair share’ particularly uncertain and controversial: see eg H Miller, What’s been happening to corporation tax?, IFS Briefing Note BN206, May 2017, available at www.ifs.org.uk/uploads/publications/bns/BN206.pdf, 11. 57 This is part of the point of the destination-based cash flow tax or DBCFT: see reference to its ‘long-term stability’ and ‘resistance to tax competition amongst states’ in AJ Auerbach, MP Devereux, M Keen and J Vella, ‘Destination-based cash flow taxation’ (2017) Oxford University Centre for Business Taxation WP 17/01, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2908158, 9.

International Tax 141 At least in the short term, policymakers appear to be pursuing the second option, albeit with an appreciation of the special difficulties of sustaining CIT revenues from digital businesses and in certain other circumstances.58 Whether this is a viable long-term solution, and whether the effort being expended on corporation tax is worthwhile in the light of its relatively minor role in the UK tax system,59 remains to be seen. In the meantime, the task of shoring up CITs has been dominated by the OECD’s BEPS programme. This is examined in slightly more depth below, but its overall aim is to develop coordinated international strategies to deal with some of the weakest aspects of the status quo. Some of the recommended solutions require participating states to accept significant limitations on their freedom of action in developing tax policy. They also involve innovations such as the conclusion of a multilateral instrument (MLI) on tax treaty matters, which contrasts with the almost exclusively bilateral character of the existing network of double tax arrangements. Yet from the perspective of UK constitutional law, there is little novelty in any of this. As with any other field of law in a dualist system, treaties concluded in pursuance of the BEPS project are signed by the UK government60 and then given domestic legal effect, if any, by Parliament. The most well-known Parliamentary incorporation of tax treaty law is section 2 of the Taxation (International and Other Provisions) Act 2010 (TIOPA). This provides as follows: (1) If Her Majesty by Order in Council declares— (a) that arrangements specified in the Order have been made in relation to any territory outside the United Kingdom with a view to affording relief from double taxation in relation to taxes within subsection (3), and (b) that it is expedient that those arrangements should have effect, those arrangements have effect. Subsection (3) provides further that this applies to income tax, corporation tax, capital gains tax and petroleum revenue tax, as well as foreign taxes ‘that are of a similar character’. As we shall see below, only minor changes to this scheme have been necessary to accommodate the MLI, which takes effect by amending existing

58 See eg the informative but inconclusive final report for BEPS Action 1: OECD, OECD/G20 Base Erosion and Profit Shifting Project, Addressing the Tax Challenges of the Digital Economy, Action 1–2015, Final Report (Paris, OECD Publishing, 2015). 59 Note, though, the OECD’s comment that ‘BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises’: OECD, ‘About the Inclusive Framework on BEPS’, available at www.oecd.org/tax/beps/beps-about.htm. Note also that corporation tax anti-avoidance may have wider benefits eg when companies are being used to avoid personal income taxes. 60 See the UK entries in OECD, ‘Signatories and parties to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting’, available at www.oecd. org/tax/treaties/beps-mli-signatories-and-parties.pdf, of which the first page of the 2018 document contains the signature of the then Foreign Secretary, Boris Johnson.

142 Europe and Beyond tax treaties rather than replacing them.61 Aside from the TIOPA provisions, an even more direct way to incorporate the outcomes of international negotiations is for them to be expressed in primary legislation, and this accounts for the steady stream of Finance Act provisions for which the government is citing the BEPS project in support.62 As we have seen, the position of EU law is a slightly different matter. The most important mechanism is section 2(1) of the ECA 1972,63 which (subject to Brexit) provides domestic legal force to general principles and directly effective provisions of EU law notwithstanding any later inconsistent national legislation.64 Section 2(1) does not incorporate EU rules that lack direct effect, such as certain directives, although member states may have an obligation to pass implementing legislation. In the tax field the traditional focus of the EU has been on indirect taxation, and in particular the creation of a customs union65 and the harmonisation of VAT66 and some excise duties. By contrast, direct taxation has traditionally been recognised as falling within the competence of member states rather than the EU. However, the perceived risk to the European Single Market from certain divergences in corporate income tax rules has inspired a series of important though narrowly focussed Directives which seek to ensure evenness of treatment between cross-border and purely domestic activities.67 Even more influential in recent years has been the increasing willingness of the CJEU to appeal to the four fundamental freedoms of the EU68 in order to prevent discrimination between cross-border and domestic activities in a wider range of circumstances. The reader is referred elsewhere for a detailed examination of this complex case law.69 For present purposes, it is enough to note that the CJEU’s activism has necessitated

61 Refer to text between nn 95 and 96, below. 62 See eg the particularly clear statement ‘This clause is an outcome of the OECD and G20 programme to tackle the erosion of the tax base by multinationals’ in HM Treasury, Finance (No. 3) Bill Explanatory Notes, 7 November 2018, available at https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/754255/Finance__No__3__Bill_Explanatory_Notes.pdf, 86. 63 See text at n 13, above. 64 At least short of the outright repeal of the ECA 1972: see text at n 36, above. 65 Consolidated version of the Treaty on the Functioning of the European Union (TFEU) [2012] OJ C326/47, Art 28. 66 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax [2006] OJ L347/1. 67 See Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States [2011] OJ L345/8; Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States [2003] OJ L157/49; Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States [2009] OJ L310/34. 68 Free movement of goods, people, services and capital. 69 A useful start is CHJI Panayi, European Union Corporate Tax Law (Cambridge, Cambridge University Press, 2013) ch 4.

International Tax 143 structural changes to the UK’s corporation tax on matters as varied as cross-border loss relief, the controlled foreign companies regime and imputation of corporation tax to dividend recipients.70 The incorporation of the ECHR into UK law by the HRA 1998 has already been discussed above71 and in chapter four.72 Suffice it to repeat the point made in chapter four that human rights law has had a more limited influence on taxation than some observers have wished, although it is an important protection for taxpayers and advisors facing punitive sanctions. As is well known, section 3 of the HRA imposes an obligation to interpret domestic legislation consistently with ECHR rights where possible. There is also a more general expectation that courts will interpret legislation in a way that ensures that the UK complies with its international legal obligations, even when those obligations have not been incorporated into UK law. There is no reason why this principle should not apply to taxation, except that any attempt to create or increase tax liabilities in this way would fall foul of the requirement of Parliamentary consent to taxation in Article 4 of the Bill of Rights 1688. These methods of incorporating international tax provisions into the UK legal system are highly significant and the jurisprudence of the CJEU in particular has done much to change the content and approach of direct taxation over recent years. In constitutional terms, however, they are easy to explain in the conventional terms of dualism and the sui generis supremacy of EU law. This is curious because we can observe in the international tax field some of the same developments that inspired Picciotto to claim in a wider context that ‘[d]ualism has given way to monism, accepting a more seamless continuity between international and national law’.73 Nevertheless, leaving the EU to one side, the constitutional filters allowing the state institutions of the UK to regulate the reception of international material into the domestic legal system seem remarkably robust. It does not follow that the consequences of globalisation and base erosion for tax systems are exaggerated, simply that they have by and large been tackled within the existing constitutional structures of the UK rather than forcing changes upon those structures. EU law is a little different, but this can be said equally outside the tax context. For the same reasons, some of the fundamental ongoing disputes in international tax policy, such as whether tax competition between states should be discouraged74 or better

70 For a quick summary see G Loutzenhiser, Tiley’s Revenue Law, 9th edn (Oxford, Hart Publishing, 2019) ch 77. 71 Refer to text at n 12, above. 72 Refer to this volume, 115. 73 Particularly apposite to tax is his comment that ‘legislatures have found new ways to incorporate international agreements more directly international agreements more directly into national law, and to authorize international administrative cooperation by government departments and other public bodies’: see S Picciotto, Regulating Global Corporate Capitalism (Cambridge, Cambridge University Press, 2011) 56. 74 P Dietsch, Catching Capital: The Ethics of Tax Competition (Oxford, Oxford University Press, 2015).

144 Europe and Beyond managed,75 are rather peripheral to UK constitutional law. Whatever strategies are chosen, they seem likely to be implemented without deep constitutional innovations, at least in the short term.

B. The BEPS Project A similar combination of conservatism and responsiveness to changing circumstances can be observed in the BEPS project itself. As the OECD remarked in an early report: Domestic rules for international taxation and internationally agreed standards are still grounded in an economic environment characterised by a lower degree of economic integration across borders, rather than today’s environment of global taxpayers, characterised by the increasing importance of intellectual property as a value-driver and by constant developments of information and communication technologies.76

The consequences of doing nothing would be to put tax revenues at risk, but also the ability of states to use their tax systems to achieve fairness and other objectives.77 Yet the OECD has not proposed radical changes to existing methods of taxing corporates, but has instead sought to identify particular points of vulnerability such as transfer pricing and the use of ‘hybrid’ structures that exploit differences in the way that jurisdictions characterise entities or transactions.78 These solidified into 15 ‘Actions’, each of which formed the focus for further work and ultimately a series of final reports in 2015. There has since been a strong emphasis on implementation, through the MLI and otherwise. There is insufficient space to examine each of the BEPS Actions in turn. Instead the focus of these paragraphs is on more general innovations within the OECD’s project that could conceivably have an impact on how international tax matters are processed by domestic constitutional law. One such innovation is the popularisation of the idea that profits should be ‘taxed where economic activities generating the profits are performed and where value is created’.79 This has intuitive appeal and could have far-reaching consequences if pursued vigorously. For instance, it is difficult to reconcile with the assertion of tax jurisdiction by states on the basis of taxpayer residence, and indeed with the allocation of some taxing rights to residence states by the OECD’s model tax convention. Is it possible, then, that the entire system could be brought into closer alignment with value creation, protecting developed countries from BEPS in return for new constraints on their exercise

75 T Dagan, International Tax Policy: Between Competition and Cooperation (Cambridge, Cambridge University Press, 2017). 76 OECD, Addressing Base Erosion and Profit Shifting (Paris, OECD Publishing, 2013) 5. 77 ibid. 78 ibid, 47–48. 79 www.oecd.org/tax/beps/beps-actions.htm.

International Tax 145 of tax jurisdiction? In turn developing countries might be able to collect higher revenues from value created using their natural resources. The answer seems to be ‘not exactly’, for at least three reasons. First, the OECD has emphasised that its Actions ‘are not directly aimed at changing the existing international standards on the allocation of taxing rights on cross-border income’.80 Secondly, to the extent that the notion of ‘value creation’ depends on an external measure of value, most available measures place a higher price on intellectual work within developed countries than on the physical act of mining in developing countries.81 It is therefore plausible, as Christians points out, that a reformed approach would produce very similar outcomes to the existing system. Thirdly, the principle of value creation is simply not as robust as it seems. It provides the least guidance in exactly the cases where it is most needed, that is, in areas such as e-commerce where the location of economic activities and value-creation is often unclear.82 There is much more that could be said about this aspect of the BEPS project, but for present purposes the point is that the revolutionary potential of the valuecreation idea seems not to have been unleashed quite yet. A more interesting development for present purposes is the decision of the OECD to use multilateral means of implementing BEPS recommendations, in contrast to the usual bilateral approach to negotiating tax treaties. From a constitutional perspective, bilateralism is a convenient compromise between the need for coordination and tax sovereignty. So, on the one hand, the prospect of double taxation has been considered extremely burdensome ever since the heavy increases in tax rates during World War I.83 There is a strong perceived need to alleviate this burden in order to facilitate international trade, not to mention fairness considerations. On the other hand, accepting external constraints on tax policy is a significant step given the close links between revenue-raising and the existence, survival and control of states more generally. No doubt the claim of the ECtHR in Ferrazzini that ‘tax matters still form part of the hard core of public authority prerogatives’84 was informed by similar considerations. It is not surprising, on this view, that it has been difficult to persuade governments to share control by signing multilateral treaties, or worse, accepting the jurisdiction of an international organisation governing cross-border taxation. The drawn-out experience of proposals for a Common Consolidated Corporate Tax Base (CCCTB) shows that even the EU on occasion struggles to build support for multilateral coordination. Against this background, model tax conventions have an obvious appeal as a means of alleviating double taxation. 80 OECD, Action Plan on Base Erosion and Profits Shifting (Paris, OECD Publishing, 2013) 11, cited in F Vanistendael, ‘An Octogenarian on Value Creation’ (2018) 90 Tax Notes International 1385. 81 See A Christians, ‘Taxing According to Value Creation’ (2018) 90 Tax Notes International 1379. 82 See further M Devereux and J Vella, ‘Value Creation as the Fundamental Principle of the International Corporate Tax System’ (2018) European Tax Policy Forum Policy Paper, available at https:// papers.ssrn.com/sol3/papers.cfm?abstract_id=3275759. 83 S Jogarajan, Double Taxation and the League of Nations (Cambridge, Cambridge University Press, 2018) 3. 84 Ferrazzini v Italy (App no 44759/98) [2001] STC 1314, 1320.

146 Europe and Beyond They provide a relatively focussed way for states to develop agreement on international best practice, without being formally obliged to observe that best practice in any specific negotiation. The competition between the dominant OECD model and the somewhat more developing country-friendly UN model, if anything, further stabilises the system by allowing fundamental disagreements to be carried out in relatively technical terms rather than through radical politics alone. The OECD’s embrace of multilateral approaches to treaty negotiation, therefore, represents a significant change from the constitutional compromises of previous decades.85 It has two closely-linked benefits. The first is that it dramatically speeds up the process of renegotiating large numbers of tax treaties. This is because treaties based on the OECD model tax convention are not automatically updated to reflect changes in that model. Instead they must be renegotiated individually, which can easily take decades. The MLI, as we shall see, provides a mechanism for updating treaties to reflect BEPS recommendations in a fraction of the time. The second point is that multilateralism improves the responsiveness of the tax treaty network to changes in the broader environment. An instructive example is the increased expectation that tax treaties ought to contribute towards anti-avoidance efforts, alongside their original function of alleviating the excessive taxation of cross-border activities owing to the concurrent exercise of tax jurisdiction by multiple states. In line with the time advantage already mentioned, multilateralism makes it possible for such objectives to be reflected within large numbers of treaties within a short time period.86 It is worth adding that the BEPS project has also inspired further coordination of direct tax systems at the EU level, in the shape of the Anti-Tax Avoidance Directive (ATAD).87 This lays down minimum standards in several areas familiar from the OECD’s work, but in some respects goes further, requiring member states to adopt a General Anti-Abuse Rule and certain provisions on exit taxation.88

C. The Multilateral Instrument It is worth looking at the MLI in a bit more detail, if only to illustrate once again the ease with which important developments in international taxation are 85 The BEPS project is, of course, not the OECD’s first experiment with multilateralism: see Dagan, above n 75, 149 ff, for a review of the ‘harmful tax competition’ programme and other relevant initiatives. 86 This might not be entirely uncontroversial, if greater responsiveness encourages a more instrumental attitude towards tax treaties and raises hopes that they could be used to further a wide range of political agenda. One view is that a more politicised debate is overdue, on the basis that ‘technocratic’ discourse tends to mask decisions with distributive and other social consequences: see eg S Picciotto, ‘Indeterminacy, Complexity, Technocracy and the Reform of International Corporate Taxation’ (2015) 24(2) Social & Legal Studies 165–84. 87 See European Commission, ‘Anti-Tax Avoidance Package: Next steps towards delivering effective taxation and greater tax transparency in the EU’ COM (2016) 023 final. 88 ATAD, above n 2, Arts 5 and 6.

International Tax 147 processed by the domestic constitution. The development of an MLI was the subject of Action 15 of the BEPS programme, and such an instrument was duly recommended in the final report.89 It has since been signed by more than 90 states worldwide,90 and modifies the ‘covered tax agreements’91 listed during the negotiation process, which according to the OECD in 2017 represented 85 per cent of the treaties concluded between signatory states.92 There is flexibility around which parts of the MLI apply to which treaties,93 and the MLI is also subject to ratification under the usual constitutional procedures of signatory states. It was signed by the UK on 7 June 2017, ratified on 29 June 2018 and entered into force on 1 October 201894 This allowed existing treaties to be amended in line with the MLI starting from 1 January 2019. There is obvious merit in the OECD’s headline claim that the MLI represents a ‘turning point in tax treaty history’ with a move ‘towards rapid implementation of the far-reaching reforms agreed under the BEPS Project in more than 1,200 tax treaties worldwide’.95 Whether it makes a significant difference to tax sovereignty is a more balanced question. The BEPS project certainly relies on states agreeing to coordinate certain aspects of tax policy, although the degree of flexibility in the MLI and the absence of a dedicated international court makes it difficult to argue that state control of taxation is being curtailed in any particularly coercive way. Correspondingly, the imprint of the MLI on the UK’s domestic constitutional law is extremely limited. The Finance Act 2018 made a few minor changes to the way in which tax treaty provisions are incorporated, the most exciting of which is as follows: 32(1) In section 2 of TIOPA 2010 (giving effect to arrangements made in relation to other territories) after subsection (1) insert— ‘(1A) For the purposes of this section, arrangements made with a view to affording relief from double taxation include any arrangements which modify the effect of arrangements so made.’

89 OECD, OECD/G20 Base Erosion and Profit Shifting Project, Developing a Multilateral Instrument to Modify Bilateral Tax Treaties, Action 15–2015 Final Report (Paris, OECD Publishing, 2015). 90 See OECD, Signatories and parties to the Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting, available at www.oecd.org/tax/treaties/beps-mlisignatories-and-parties.pdf. 91 Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting (MLI), Arts 1 and 2. 92 OECD, Frequently Asked Questions on the Multilateral Instrument (MLI) (July 2017), available at www.oecd.org/tax/treaties/MLI-frequently-asked-questions.pdf, 3. 93 This can be seen readily from the rights of reservation expressed throughout the MLI. 94 HM Revenue & Customs, Multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting (Guidance, July 2018), available at www.gov.uk/government/ publications/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-base-erosionand-profit-shifting. 95 OECD, Multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting (Information brochure, March 2018), available at www.oecd.org/tax/treaties/multilateralinstrument-BEPS-tax-treaty-information-brochure.pdf, 2.

148 Europe and Beyond So the incorporation of treaty provisions by section 2 of TIOPA also applies to alterations under the MLI. This is important but it is hardly the stuff of constitutional crises. In other words, whilst the MLI is indicative of an important shift in the readiness of states to coordinate tax policies in order to preserve revenue streams, thus far in the UK the shift is capable of being domesticated within existing constitutional structures rather than revolutionising them. This substantiates Elizabeth Wicks’ comments in a different context, that one of the strengths of the UK constitution is to show flexibility in the face of external change without compromising its core principles.96

D. Information Flow Another set of developments that have informed the BEPS project, but which date back to the 1970s,97 involve attempts to improve information flows between states in order to make cross-border avoidance evasion easier to diagnose and prevent. The OECD issued a model Tax Information Exchange Agreement (TIEA) in 2002 and has in particular encouraged low-tax jurisdictions to sign such agreements with a view to being removed from tax haven blacklists.98 The paradigm of information exchange under this agreement was initially that one state would request data from another state in respect of specified taxpayers, and the other would provide that information as comprehensively and promptly as possible.99 More recently, the focus has shifted to automatic and spontaneous exchange of information, with states expected to collect and exchange certain types of information without the need for a prior request.100 In spite of serious concerns around taxpayer confidentiality and the willingness and capacity of some states to protect taxpayer information,101 the principle of automatic exchange has gathered rapid and substantial international support. It is also reflected in the BEPS project. Action 13, for example, recommends that certain multinational enterprises be required to refine their transfer pricing methodologies into a ‘country by country report’ which would then be shared automatically’.102

96 Wicks, above n 37, 200. 97 Dagan, above n 75, 153. 98 OECD, Agreement on exchange of information on tax matters (Model TIEA) (Paris, OECD Publishing, 2002); ibid. 153–4. 99 ibid. 100 OECD, Model protocol for the purpose of allowing the automatic and spontaneous exchange of information under a TIEA (Paris, OECD Publishing, 2015); see also Multilateral convention on mutual administrative assistance in tax matters, Arts 6 and 7; OECD, Standard for automatic exchange of financial account information in tax matters (Paris, OECD Publishing, 2014). 101 See generally F Debelva and I Mosquera, ‘Privacy and Confidentiality in Exchange of Information Procedures: Some Uncertainties, Many Issues, but Few Solutions’ (2017) 45(5) Intertax 362–81. 102 OECD, OECD/G20 Base Erosion and Profit Shifting Project, Transfer Pricing Documentation and Country-by-Country Reporting, Action 13–2015 Final Report (Paris, OECD Publishing, 2015) 10; Dagan, above n 75, 158.

International Tax 149 These developments in exchange of information, which also have counterparts in EU law,103 are particularly interesting in the context of the present study, because they target essentially the same problems as the information provisions in domestic UK law discussed in chapter four.104 Exchange of information on request allows tax authorities to access data without which it would be difficult or impossible to prevent avoidance or evasion. However, it is less helpful in cases where tax authorities have no reason to be aware that anything is wrong or that a request is necessary. The shift towards automatic exchange of information therefore mirrors domestic regimes such as DOTAS, which as we have seen alert tax officials to potential problems by accelerating the accumulation of relevant taxpayer data.105 As might be expected, interrelations have developed between supranational and national rules on exchange of information. The UK government, for example, has cited EU law and the OECD’s model mandatory disclosure rules in support of conferring yet more information powers on HMRC.106 Conversely, the experience of unilateral measures of domestic law such as the US Foreign Account Tax Compliance Act (FATCA) seems to have influenced discussions within the OECD.107 As with the MLI and BEPS more generally, there is an uneasy relationship between form and substance in relation to information exchange. On a formal level, information exchange treaties are agreed by the government acting under the treaty-making powers of the Royal Prerogative and given domestic legal effect under Acts of Parliament.108 In other words, the usual principles apply. On a more substantive level, it is remarkable that governments in developed states have concluded that they cannot adequately administer their tax systems without seeking large volumes of data from other states and agreeing to provide data to those other states on a reciprocal basis.109 More fundamental still is the relationship between taxpayer and state. It is one thing to accept that property rights are inherently qualified by tax obligations, including reporting and information requirements, in relation to states that recognise and protect those rights and in which the taxpayer participates meaningfully. It is a more difficult matter altogether to explain what mutual obligations are owed when taxpayers set up accounts and operations in jurisdictions to which they have little allegiance, and which in

103 Council Directive (EU) 2011/16 of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC [2011] OJ L64/1, Ch II Section II. 104 Refer to this volume, 109. 105 Refer to this volume, 110. 106 HM Revenue & Customs, International Tax Enforcement disclosable arrangements (Policy paper, July 2018), available at www.gov.uk/government/publications/international-tax-enforcement-disclosablearrangements/international-tax-enforcement-disclosable-arrangements. 107 See eg OECD, Addressing BEPS, above n 76, 30. 108 See eg the International Tax Enforcement (Grenada) Order 2011, SI 2011/1687, enacted under Finance Act 2006, s 173. This legislation is particularly helpful in clarifying what officials may do in pursuance of the TIEA. See also International Mutual Administrative Assistance in Tax Matters Order 2007, SI 2007/2126 and International Mutual Administrative Assistance in Tax Matters Order 2011, SI 2011/1079, also given effect under the same provision of the FA 2006. 109 OECD, above n 100.

150 Europe and Beyond turn treat taxpayer data as a resource to be shared between treaty partners. This is of course not a strong argument against exchange of information, which seems to be necessary to identify tax cheats, and in any case operates under fairly tightly defined parameters.110 Yet it does further illustrate the point made throughout this chapter, that the UK constitution’s mediation of international tax material has remained fairly stable whilst the content and meaning of that material has changed dramatically.

E. Fragmentation of the Tax System It is undeniable that EU membership, and latterly involvement with the OECD’s exchange of information and BEPS initiatives, have involved momentous changes to the UK tax system. In line with the discussion above of ‘hollowing out of the state’, these changes are sometimes described in terms of the ‘fragmentation’ of the tax system. Prior to 1972, taxation was subject to central control by the Westminster institutions, with the relatively minor exception of property rating, which was subsequently centralised anyway.111 Since then, central control has been eroded steadily by the twin forces of international coordination and tax devolution, creating a complex network of authority in which reliance on hierarchy to impose decisions is the exception rather than the norm. If this story of erosion seems too deterministic, it can be admitted that developments in international tax and devolution owe a great deal to the deliberate initiative of states in navigating the opportunities and threats of global mobility, ecommerce and other aspects of economic globalisation. Nevertheless, the point remains that the UK tax system, only recently capable of being described in purely national terms, has evolved rapidly to a position where it responds to a bewildering array of supra- and subnational institutions with complex and sometimes uncertain interrelations. As with more general arguments that globalisation is hollowing out the nation state, however, the view that the UK tax system is being fragmented should be treated with care. The requirement of Parliamentary consent to taxation, expressed by Article 4 of the Bill of Rights 1688, is accommodated by the devolution legislation and has not yet been overturned by EU tax integration, the BEPS project or any other development in international taxation.112 Furthermore, through Parliamentary sovereignty and the dualist approach to international law, the Westminster institutions seem to have retained a substantial latitude to override other tiers of government. For instance, for the UK government to disobey 110 See eg the circumstances under which automatic exchange of information is permitted under OECD, Standard for automatic exchange, above n 100, 24. 111 Refer generally to this volume, ch 2. 112 For a different view, see T Tucker and M Hearson, ‘“An Unacceptable Surrender of Fiscal Sovereignty”: Arbitration and Sovereignty in the Double Taxation Regime’, Working Paper, December 2019, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3458663. Tucker and Hearson explain that the introduction of mandatory binding arbitration clauses into double tax treaties.

Brexit 151 the Sewel Convention by sponsoring legislation on devolved matters without the consent of the Scottish Parliament may well be ill-advised. Yet it was confirmed in Miller (no 1) that this behaviour is not illegal either under the devolution legislation or as a matter of general constitutional law.113 The same may be said of the prospect of Parliament overturning the supremacy of EU law and CJEU jurisdiction by repealing the ECA 1972, of which the consequences and wisdom have been debated widely but the technical legality is generally accepted. Meanwhile, as we have seen in chapter four of this book, closer international cooperation has been accompanied not by a collapse in national tax administration but rather a precipitate increase in the range and coerciveness of HMRC powers. The continued relevance of Parliamentary sovereignty, and the concurrent accumulation of HMRC powers, does not change the underlying reality for the UK in being a post-imperial state in a changing world and at risk of further decline in global importance over the decades to come. Nevertheless, ‘fragmentation’ and ‘hollowing out’ are not necessarily the most helpful ways to describe the evolving UK tax state. Sol Picciotto’s book Regulating Global Corporate Capitalism uses the language of fragmentation, but also observes shrewdly that ‘we have not seen the demise but the transformation of the nation-state’.114 This also matches the observation of constitutional lawyers that the UK constitution has a tendency to adapt to changed circumstances rather than breaking altogether.115 Whilst this point is most familiar from historical events such as the transition from Stuart monarchy to constitutional monarchy following the Glorious Revolution of 1688, it might also be applied to the UK’s relationship with supranational law in the age of globalisation, BEPS, expanding EU competence over direct taxation, Brexit and presumably a renewed impetus towards Scottish independence. The UK government has made a series of significant choices in response to perceived threats to revenue streams, including participating in the OECD’s attempt to shore up corporate taxation, participation in multilateral tax agreements and negotiations to preserve some aspects of EU membership despite the vote to leave in 2016. These are highly significant for the evolution of the UK tax system but from a constitutional perspective are being pursued within existing structures rather than, yet, fracturing them. Brexit raises some special considerations, and it is to these that we now turn.

III. Brexit A. Overview of Tax Issues With one important exception, a similar conclusion will be reached for Brexit, which entails potentially momentous changes to the UK tax system but few that

113 Miller

(no 1), above n 22, [136]–[151]. above n 73, 26. 115 Refer to fn 96. 114 Picciotto,

152 Europe and Beyond cannot readily be reconciled with domestic constitutional law. The intersections of UK taxation with EU law fall under three broad categories. First, there are harmonised rules across the EU for VAT and certain excise duties.116 Customs duties are not applied between EU member states or other members of the EU customs union, and instead common external tariffs are applied. Secondly, direct taxes such as income tax, capital gains tax and inheritance tax are not harmonised; nor is corporation tax. However, they must comply with the four fundamental freedoms of the EU, the various directives dealing with cross-border taxation and other relevant principles of EU law.117 Thirdly, there are other areas of EU law that can have a bearing on taxation. The impact of state aid law has become especially famous following the decision of the European Commission that the application of Irish tax law to the multinational technology business Apple constituted an illegal state aid, which Apple accordingly had to repay to the Irish government.118 However, it also has implications for other aspects of taxation including devolution. Subnational governments must comply with state aid law, yet it is often of the essence of devolution that they may vary tax rates and sometimes even the underlying rules. In particular, it may be difficult to distinguish between legitimate exercises of devolved authority and the conferral of illegal selective advantages to classes of taxpayer, at least where the de minimis exceptions to the application of state aid law are exceeded.119 Moving to matters of finer detail, tax disputes may engage other aspects of EU law; for instance, EU principles on workplace discrimination may be relevant to the provision of tax-efficient share incentive schemes to workers. The UK’s vote to leave the EU therefore raises a whole range of technical questions, to which no doubt entire books will be devoted depending on the decisions taken by EU and UK negotiators over the next few years. Brexit also raises some structural problems around how to organise the tax system. The most obvious is the extent to which the UK ought to replicate the content of EU law after the repeal of the ECA 1972, either as a means of minimising trade and political frictions during what may be a difficult transition period or as part of a longer-term settlement. This mirrors more general debates on the relative merits of ‘soft Brexit’, involving a high degree of regulatory alignment with the EU, and ‘hard Brexit’, involving heightened economic and political risks but potentially allowing the UK more latitude to explore the putative benefits of leaving the EU. A more technical variant of this problem arises in the event of a soft Brexit, which is how regulatory alignment can be sustained not only at the point of departure,120 but on an 116 Refer to text at n 66. 117 Refer to text at nn 67 and 68. 118 Apple (Case SA.38373) Commission Decision (EU) 2017/1283 [2004] OJ L 187/1. 119 Refer to this volume, 42 n 60. 120 This in any case guaranteed under the provisions of the European Union (Withdrawal) Act 2018 relating to retained EU law: see ss 2–7.

Brexit 153 ambulatory basis over the years to come. Accepting continued CJEU jurisdiction and direct effect in respect of greater or lesser parts of the legal system would be a straightforward way of ensuring this, but this is politically sensitive, as is the Swiss method of concluding multiple bilateral agreements with the EU in order to keep pace with developments.121 It is easy to imagine increasing problems with cross-border VAT, though, if alignment with EU law at the point of departure were gradually to give way to divergence in the applicable legislation and its interpretation by courts. The decisions being made on these matters are of momentous importance and will shape our understanding of the UK constitution for years to come, and not necessarily in ways that are easily anticipated. For instance, who could have predicted that the highest UK court would finally resolve the tension between the dualist understanding of EU law as incorporated international law and the EU’s self-understanding as a pre-eminent source of domestic law, in favour of the latter and after the vote to leave the EU?122 This decision does not threaten Parliamentary sovereignty in a strict sense, given that Parliament may legislate to remove this source of law, but does contrast strongly with the more delicate past attempts of the Supreme Court and its predecessor to reconcile EU law with the UK’s constitutional traditions. It will be interesting to see whether this principle is extended to other varieties of supranational law over the coming years, or whether it is isolated as a sui generis feature of the UK’s involvement in the EU or even a pragmatic technique by the Supreme Court to ensure proper Parliamentary consideration of a critically important political decision. In the next section of this chapter, the focus moves to a special instance of the tax problems faced by the UK following the vote to leave. This is the question of what to do about customs duties. This is particularly interesting from a constitutional perspective because it involves more than a simple question of how best to extract revenue in a changing political and legal environment. Instead, it provides perhaps the clearest example in this book of a tax-related problem that is influencing the wider evolution of the UK constitution, in this case by channelling political negotiations into a narrow range of options that are legally and administratively feasible. This is largely because the imposition of customs duties typically involves physical infrastructure, border officials, inspections and coercive enforcement powers, not to mention important intersections with trade law, public health regulation, environmental protection and immigration control.

121 See European Parliament, The European Economic Area (EEA), Switzerland and the North (Factsheet, 2019), available www.europarl.europa.eu/ftu/pdf/en/FTU_5.5.3.pdf, 3–5. 122 See further Miller (no 1), above n 22; J Murkens, ‘Mixed messages in bottles: the European Union, devolution, and the future of the constitution’ (2017) 80 MLR 685.

154 Europe and Beyond

B. Customs Overview In the simplest possible terms, customs duties are taxes payable on imports and exports, based either on the value or the volume of the goods in question.123 They are distinguishable from excise duties, which are payable on the domestic production and consumption of certain goods, notably alcohol, tobacco and some energy products.124 Customs duties are not charged on imports and exports between members of the EU customs union, but a Common External Tariff (‘CET’) is charged on imports from outside the customs union. The proceeds of the CET make up a substantial portion of the funding of the EU Budget.125 The administration of customs duties both under the CET and under previous domestic rules involves a mixture of paperwork and physical checks. Under EU rules, persons subject to customs law must register as an ‘economic operator’ and are assigned an economic operator registration and identification (EORI) number.126 An entry summary declaration (ENS) must be submitted for consignments entering the EU at the first customs office of entry.127 The goods are then placed into temporary storage until they are either approved for release for free circulation or subject to special procedures relating to transit, storage, specific uses or processing.128 Release for free circulation allows the goods to be further transported or used within the customs union as if they had been produced within the union,129 and is only available once the relevant customs duties have been paid and other charges and authorisations satisfied.130 Simplified procedures are available in some circumstances, particularly for those who meet the requirements of the Authorised Economic Operator (AEO) scheme.131

123 See J Law and EA Martin, A Dictionary of Law, 7th edn (Oxford, Oxford University Press, 2014), entry for ‘customs duty’. 124 ibid, entry for ‘excise duty’; see also European Commission, ‘Taxation and Customs Union, Excise duties on alcohol, tobacco and energy, General overview’, available at https://ec.europa.eu/ taxation_customs/business/excise-duties-alcohol-tobacco-energy/general-overview_en. 125 See European Commission, ‘EU budget own resources’, available at https://ec.europa.eu/info/ about-european-commission/eu-budget/revenue/own-resources_en. 126 T Lyons, EU Customs Law, 3rd edn (Oxford, Oxford University Press, 2018) 379–80. 127 There are certain exceptions to this duty: ibid, 353–55. 128 See European Commission, ‘EU import procedures’, available at http://trade.ec.europa.eu/ tradehelp/eu-import-procedures. 129 See European Commission, ‘Taxation and Customs Union, Customs Procedures, What is importation, Free circulation’, available at https://ec.europa.eu/taxation_customs/business/customsprocedures/what-is-importation/free-circulation_en. 130 Regulation (EU) 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code [2013] OJ L269/1, Art 201. 131 ibid, Arts 38–41. See also European Commission, ‘Taxation and Customs Union, General Information on Customs, Customs Security, Authorised Economic Operator (AEO)’, available at https://ec.europa. eu/taxation_customs/general-information-customs/customs-security/authorised-economic-operatoraeo/authorised-economic-operator-aeo_en#what_is.

Brexit 155 It will be noticed immediately that these procedures necessitate physical infrastructure at the point of entry into the customs union or at other secure locations, even if in practice they are only applied to a small minority of transactions. This infrastructure includes not only warehouses to store goods pending release but also the control facilities that are needed to manage a variety of risks including counterfeiting, drug trafficking, terrorism, food safety and of course the smuggling of goods without paying the correct duties.132 This infrastructure exists for practical reasons yet also forms one of the most visible manifestations of the nature and boundaries of the state, not only for importers but also for ordinary citizens. For instance, even though the UK has never been part of the Schengen zone of free travel within the UK, airport travellers have become used to walking straight through the blue ‘EU’ corridors without interruption, and the security procedures at the Eurostar terminals are hardly more intrusive than those for entering various public buildings. This can be contrasted with the experience in the early 1990s when border guards and customs officials were a highly visible presence, and even with the customs-induced delays in jurisdictions such as Switzerland that are within Schengen but outside the customs union.133 The point is not that border controls have been relaxed, although certainly more targeted enforcement and technological sophistication have allowed them to become less noticeable. It is rather that the physicality of customs controls means that their presence, absence or coordination through a customs union inevitably affects the way in which the projection of state power is perceived. It is not for nothing that the campaign to leave the EU concentrated on the issue of borders, immigration and ‘taking back control’, and that proposals to remain within the customs union even as a non-member of the EU remain so problematic to many Leave supporters. This in turn suggests that the word ‘control’, despite its continuity with earlier Eurosceptic arguments based on ‘sovereignty’,134 is not synonymous with a Diceyan understanding of the UK constitution. The legal sovereignty of Parliament to make decisions unconstrained by EU law has certainly been a point of contention in the UK’s long disputes about Europe, but arguably a more immediate campaigning point has been the desire to delineate the UK’s territory more clearly and to reverse the softening of visible borders that has taken place over the past decades. Leaving aside for the moment the normative question of whether harder borders should be welcomed as a matter of principle, it is something of an understatement to say that the Irish land border raises special considerations. It is to these that we now turn. 132 See European Commission, ‘Taxation and Customs Union, Customs controls, The role of Customs Controls’, available at https://ec.europa.eu/taxation_customs/business/customs-controls/ general_en and European Commission, ‘Taxation and Customs Union, Customs Risk Management, The measures: Customs Risk Management Framework (CRMF)’, available at https://ec.europa.eu/ taxation_customs/general-information-customs/customs-risk-management/measures-customsrisk-management-framework-crmf_en. 133 C Morris, ‘Brexit: What can UK learn from other external EU borders?’, BBC News, 15 May 2018, available at www.bbc.co.uk/news/uk-44054594. 134 Refer to n 17.

156 Europe and Beyond

C. The Irish Border As is well known, the land border between Northern Ireland and the Republic of Ireland has created serious difficulties for the negotiation of the UK’s departure from the EU. The first and most obvious problem is its length and permeability. According to the Northern Ireland Affairs Committee, it has twice as many crossings as the entirety of the EU’s eastern border.135 It has been famous for smuggling since the partition of Ireland in 1921 and the Committee reports Professor John Doyle as stating that: 33,000 members of the Armed Forces were deployed in Northern Ireland. If you talk to veterans, I do not think you will find a single officer who thought the border was sealed for one hour during that period. All the evidence is that it was not.136

The second special consideration is that there is a common travel area (CTA) between the UK and the Republic of Ireland, which dates to the early 1920s. This has not always been associated with open borders, in part owing to the history of political violence in Northern Ireland. However, it has involved the non-application of immigration and passport controls to citizens of the two countries, as well as the Isle of Man and Channel Islands.137 Thirdly, citizenship is unusually flexible in Northern Ireland anyway. Irish citizenship has long been available to persons born on the island of Ireland, subject to certain immigration restrictions set out in the Irish Nationality and Citizenship Act 2004. The Good Friday Agreement (GFA) of 1998 that concluded the peace process of the 1990s and paved the way for devolved government in Northern Ireland altered the constitutional basis of this position by requiring the Republic of Ireland to renounce its formal territorial claim over the province. However, it achieved a similar practical outcome by recognising: the birthright of all the people of Northern Ireland to identify themselves and be accepted as Irish or British, or both, as they may so choose, and accordingly confirm that their right to hold both British and Irish citizenship is accepted by both Governments and would not be affected by any future change in the status of Northern Ireland.138

The GFA also established elements of shared governance over Northern Ireland. The North-South Ministerial Council involves ministers from both parts of Ireland exercising powers over various areas of policy, although it has not convened

135 Northern Ireland Affairs Committee, 2nd Report – The land border between Northern Ireland and Ireland (HC 2017–19, 329) [107]. 136 ibid, [108]. 137 See T McGuinness and M Gower, ‘The Common Travel Area, and the special status of Irish nationals in UK law’, House of Commons Library Briefing Paper no. 7661, 9 June 2017, available at https:// researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7661. 138 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ireland, 10 April 1998, available at https://assets.publishing.service.gov. uk/government/uploads/system/uploads/attachment_data/file/136652/agreement.pdf, Art 1(vi).

Brexit 157 since 2016 owing to the suspension of the Northern Ireland Assembly. The British-Irish Intergovernmental Conference involves representatives of the UK and Irish Governments and typically deals only with non-devolved matters, but is also dealing with devolved matters whilst the Assembly remains suspended.139 Part of the purpose of these arrangements was to provide a short-term counterpoint to the long-term assurance that: it is for the people of the island of Ireland alone … to exercise their right of selfdetermination on the basis of consent, freely and concurrently given, North and South, to bring about a united Ireland, if that is their wish, accepting that this right must be achieved and exercised with and subject to the agreement and consent of a majority of the people of Northern Ireland.140

In the meantime, Northern Ireland would remain part of the UK but open borders, the abolition of border controls on goods under the European Single Market of 1992, flexible citizenship arrangements and shared governance would help to accommodate a wide variety of allegiances as well as domestic and working arrangements. To say the least, these helpful ambiguities around nationality and governance are difficult to reconcile with the reimposition of customs barriers along the Irish countryside, or indeed between Great Britain and the island of Ireland. If customs and related considerations had not intervened, the negotiations for the UK’s departure from the EU might have taken a similarly ambiguous or at least non-dogmatic approach to the border. As Phinnemore and Hayward observe, The success of the [Good Friday] Agreement has centred on viewing the Irish border, and Northern Ireland more broadly, as a point of contact between the UK and Ireland, not a dividing line between them.141

Unfortunately, customs considerations have created clarity at exactly the point where ambiguity might have been most useful. As mentioned above, customs borders usually involve not only clear delineations of territory but also substantial physical infrastructure, though the most inconvenient forms of enforcement are likely to affect only a small minority of transactions. A possibility that was occasionally raised was for the UK unilaterally to remove all tariff and non-tariff barriers after leaving the EU.142 However, even assuming that this idea would have other benefits such as improving the UK’s trading position and protecting against 139 See also Wicks, above n 37, 182. 140 British-Irish Agreement, above n 137, Art 1(ii). 141 D Phinnemore and K Hayward, ‘UK Withdrawal (‘Brexit’) and the Good Friday Agreement’, (Brussels: Policy Department for Citizens’ Rights and Constitutional Affairs, 2017), available at www. europarl.europa.eu/RegData/etudes/STUD/2017/596826/IPOL_STU(2017)596826_EN.pdf, 9. 142 D Hannan, ‘Singapore shows us how we might make a success of Brexit – even if it’s by accident’, The Telegraph, 27 January 2019. See, however, Department for International Trade, Non-preferential tariff rates and quotas on imports if the UK leaves the EU with no deal (Statutory guidance, October 2019), available at www.gov.uk/government/publications/temporary-rates-of-customs-duty-on-importsafter-eu-exit/mfn-and-tariff-quota-rates-of-customs-duty-on-imports-if-the-uk-leaves-the-eu-withno-deal.

158 Europe and Beyond post-Brexit price rises, a ‘unilateral free trade’ strategy would not on its own have resolved the problems of the Irish border. This is because the EU’s customs union is premised on non-imposition of tariffs between member states and the imposition of the CET on non-member states, meaning that the EU would have to apply tariffs even if the UK chose not to. Even if the matter of revenue-raising could be resolved, there would remain a need to confirm that at least certain types of goods entering the EU were not prohibited and met a range of product safety and sanitary conditions. There has in consequence been an increased emphasis on the question whether the necessary checks could be done either remotely from the border or in a relatively invisible manner using technological solutions. This matter has generated a great deal of political heat, partly because there is a spectrum of opinion on what counts as a ‘hardening’ of the Irish border, on which the EU and the UK government appear to take different positions. The interpretations reported by the Northern Ireland Affairs Committee ranged from ‘physical infrastructure … or … checks and controls with a van that turns up and places itself on the border’ to ‘roaming charges returning as soon as the UK leaves the EU’ or even ‘any impediment to the normalcy that has been developed over the last 20 years’.143 The preference of the UK has been for a ‘maximum facilitation’ approach which would minimise the need for physical infrastructure through a mixture of close cooperation between the UK and Irish governments and the EU, risk-based enforcement measures applied away from the border and technological surveillance.144 In the increasingly ludicrous terminology of Brexit, the Committee considered that this approach was not a ‘unicorn’ and that the principal obstacle was not technical but rather an absence of trust between the relevant parties.145 It is this lack of trust that has informed the preference of the EU and the Irish Government for special arrangements whereby significant parts of EU law will continue to apply to Northern Ireland even after the UK’s departure from the Union.146 Whilst the point about trust is well-made, many assessments of the potential for technological solutions are significantly more pessimistic. It is often pointed out that of the most advanced systems in the world, the Norway-EU and Switzerland-EU borders contain significant physical infrastructure,147 and even Singapore has not obviated the need for physical checks.148 The Northern Ireland Affairs Committee itself, in an earlier report, noted that: … we have had no visibility of any technical solutions, anywhere in the world, beyond the aspirational, that would remove the need for physical infrastructure at the border.149 143 Northern Ireland Affairs Committee, The Northern Ireland backstop and the border: interim report (HC 2017–19, 1850). 144 ibid, 23. 145 ibid, 23. 146 ibid, 5–13, 23. 147 Northern Ireland Affairs Committee, The land border, above n 134, 22, 28–29. 148 European Union Committee, Brexit: the customs challenge (HL 2017–19, 187) 31. 149 Para 82.

Brexit 159 Let us bear in mind the point made previously, that ‘hardening’ of the border is not a binary matter of open versus closed, but may variously be understood to include a range of phenomena from military installations to inconveniences with mobile phone reception. It is nevertheless possible to see that the needs of customs law narrowed the options available to policymakers negotiating the UK’s withdrawal from the EU, and indeed made political settlement more difficult to reach. At a very basic level there have been three possibilities: 1.

Accept that customs enforcement and related checks will involve a hardening of the border between Northern Ireland and the Republic of Ireland, but seek to mitigate any new frictions as much as possible. 2. Maintain the status quo on transport within the island of Ireland, accept a hardening of the border between Northern Ireland and Great Britain, but seek to mitigate any new frictions as much as possible. 3. Maintain the status quo by keeping the UK within the EU, accepting the continued application of some parts of EU law or by achieving a degree of regulatory alignment with which all parties are comfortable. These three possibilities are paradigm cases and in practice are not mutually exclusive. In particular, under the most recent agreement between the UK and EU, option 1 will apply to intra-UK trade and option 2 to trade between the UK and the EU,150 perhaps accompanied with ‘draconian penalties for noncompliance’.151 The problem is that even in softened form, each of the three options engages with matters of extreme political sensitivity. Option 1 threatens the expectations of Irish nationalists, raised by the GFA, that many aspects of their everyday lives could be experienced as if there were a united Ireland, pending further political discussions on the constitutional status of Northern Ireland at some point in the future. Option 2 threatens the expectation of Irish unionists, again raised by the GFA, that greater separation between Northern Ireland and Great Britain would only be carried out with the consent of a majority of the people of Northern Ireland. Option 3 raises fears amongst supporters of leaving the EU that the ultimate outcome will be ‘Brexit in name only’ whereby the UK follows EU law without any opportunity to influence its content. In this light, it is no surprise that the most recent compromise, described above, has deeply disappointed the Democratic Unionist Party. The problem is exacerbated by the ‘most favoured nation’ principle of the World Trade Organization (WTO), under which the most favourable import and export arrangements provided by a WTO member must be made available for trade with

150 European Union and United Kingdom, New Protocol on Ireland/Northern Ireland and Political Declaration (Policy Paper, October 2019), available at www.gov.uk/government/publications/newprotocol-on-irelandnorthern-ireland-and-political-declaration, Arts 4–7. 151 D Boffey, ‘“One last chance”: why Irish border question remains sticking point’, The Guardian, 14 October 2019, available at www.theguardian.com/politics/2019/oct/14/one-last-chance-why-irishborder-question-remains-sticking-point.

160 Europe and Beyond all other member countries.152 There are certain exceptions to this rule, including, most relevantly, one for trade between parties to a ‘customs union’ or ‘free-trade area’.153 This means that the UK and EU may be in breach of WTO obligations if they impose more a favourable customs regime on each other’s products than on products from third countries, depending of course on the terms of any agreement that is reached concerning the future relationship of the UK and EU. This problem is likely to be manageable but may well complicate negotiations as they continue throughout 2020. The irony is that by channelling the possibilities of Brexit into a limited combination of options, each of which has raised serious concerns for important constituencies, customs law and associated border regulation has seriously increased the risks of disorganised and even hostile outcomes to Brexit negotiations. It has correspondingly contributed to the polarisation of UK politics and the understanding of Brexit as a zero-sum game in which an advantage for Remainers is a loss for Leavers and vice versa. In the context of Northern Ireland this has been compounded with the suspension of the Northern Ireland Assembly, the controversial participation of the Northern Irish Democratic Unionist Party in the UK Government between 2017 and 2019 and the resumption of some terrorist activities to produce a potential combustible situation. In turn, this has further reduced the EU’s confidence in the UK’s capacity to preserve peaceful relations on the island of Ireland. In this way, the technicalities of tax and trade administration have played their part in encouraging politics towards hardline positions that were not at first taken particularly seriously.154 None of this is to suggest that the problems of Brexit have been caused by taxation, even to the extent that the English Civil Wars can be said to have been caused by the Case of Ship Money.155 The role of customs duties and associated regulation has rather been to encourage clarity when a political settlement might have been assisted by a certain constructive vagueness, rather in the manner of the GFA itself. On reflection, this is a different version of a point that has been made elsewhere in this book, for example with respect to English regional devolution, that tax powers can lend some definiteness to political initiatives that could

152 General Agreement on Tariffs and Trade 1994, Art I. 153 ibid, Art XXIV. 154 A striking example of this is the claim by the Vote Leave campaign in 2016 that ‘Taking back control is a careful change, not a sudden step – we will negotiate the terms of a new deal before we start any legal process to leave’, excerpted in S Bloomfield, ‘No deal is against the will of the people – and here’s the proof; Vote Leave promised a deal’, Prospect, 29 January 2019, available at www.prospectmagazine.co.uk/politics/no-deal-is-against-the-will-of-the-people-and-heres-the-proof. Contrast this with a survey outcome in March 2019 revealing that Leave supporters preferred a no-deal outcome to a delayed Brexit by 73% to 17%: J Burn-Murdoch, ‘Brexit: polls that show how Britain cannot make up its mind’, Financial Times, 22 March 2019. 155 See further M Braddick, ‘Case of Ship-Money (R v Hampden) (1637): Prerogatival Discretion in Emergency Conditions’ in J Snape and D de Cogan (eds), Landmark Cases in Revenue Law (Oxford, Hart Publishing, 2019).

Tax in the Constitution 161 otherwise be dismissed as empty rhetoric.156 Tax is not unique in providing an interface between high politics and the technical and mundane details of government – there is something of this also in the military – but it is certainly a feature of our field that tends to be underappreciated.

IV. Tax in the Constitution A. Resilience and Vulnerability It is often said that the UK constitution is relatively resilient to internal and external change. Epoch-making reforms have been assimilated into the constitution whilst keeping many of the fundamental principles intact. The UK’s membership of the EU is an example of this flexibility, albeit an unusual one. The principle of supremacy of European law over inconsistent domestic legislation was accepted on the UK’s accession to the European Communities in 1972 yet is difficult to reconcile with Parliamentary sovereignty as traditionally understood. At least from a legal perspective, though, the response has not been to discard previous constitutional assumptions altogether but to develop a series of more or less plausible explanations for the status of EU law in cases such as Factortame (no. 2),157 Thoburn v Sunderland City Council158 and Miller v Secretary of State for Exiting the EU.159 More than this, these explanations have provided a constructive role in the evolution of the constitution even outside of the EU context, raising important questions such as the possibility of allowing limited entrenchment of some critically important statutes. The same may be said of the reception of international tax rules into domestic law. The BEPS project has been presented as a game-changing example of international cooperation to combat tax avoidance. For the reasons outlined above, this presentation of the OECD’s efforts conceals a certain conservatism of approach, but it is certainly conceivable that yet more radical schemes of cooperation will be negotiated in the years and decades to come. As things stand, though, there is little about the BEPS project, including the much-heralded shift to multilateralism, that presents particular difficulties to orthodox UK constitutional principles. The ‘filters’ through which domestic law processes extrinsic legal material,160 are able to accommodate even quite profound reforms on the international level.

156 Refer

to this volume, 38, 53. Ltd (No.2), above n 14. 158 Thoburn v Sunderland, above n 11. 159 Miller (no 1), above n 22. 160 Refer to text at n 7, above. 157 Factortame

162 Europe and Beyond This highlights what has been so unusual, and worrying, about the Irish border. In this context, the challenge facing the UK is not so much extraneous information that can be filtered through our usual constitutional rules, but rather an unavoidable series of choices between a harder UK-ROI border, a harder Great Britain-Ireland border or a softer Brexit. It is unclear, at this stage, how constitutional law can act as more than a passive recipient of this political choice, and in particular how it can play the fourth of the roles explained in chapter one by reference to David Feldman’s work.161 That is, providing flexibility in the face of political and social change. If anything, the legal obligations to re-impose customs and other checks in the event of some varieties of Brexit may serve to heighten rather than to mollify political instability in the UK and ROI alike. The Irish border, therefore, is a point of vulnerability and a potential counterexample to the famed flexibility of the UK constitution.

B. Disciplinary Integrity The reader will have noticed that the discussion in this chapter has ranged beyond the typical coverage of tax legal texts, to encompass questions of border arrangements that are more usually the province of trade lawyers and customs specialists. This reflects, it is suggested, a deep ambiguity in the nature of tax scholarship. The essence of this ambiguity is that our ability to separate ‘tax law’ from other areas of study depends heavily on what fields of taxation we are talking about. The most well-studied areas of tax have traditionally been income and corporation tax, at least in the UK. These also just so happen to be the taxes that are easiest to separate from other areas of law.162 If we move our focus to other taxes, the disciplinary purity of tax law becomes much harder to defend. Customs law intersects with trade law, immigration, disease prevention, anti-terrorism, product safety and a whole range of other fields of regulation. It is also, at least in this point in history, intertwined with the constitutional future of the UK and in particular the location and nature of its territorial boundaries. None of this is the exclusive preserve of tax lawyers, but then nor are the multi-level governance issues of devolved taxation, taxpayer protection or the questions of legislative reform and scrutiny. Indeed the extent to which an ever so slight reframing of tax law, bringing familiar but sometimes overlooked questions to the forefront, greatly increases the interdisciplinarity of the subject, is a rather a constant theme throughout this book.

161 Refer to this volume, 7. 162 Though of course less so from the accounting principles on the basis of which profits are calculated: see generally J Freedman, ‘Odeon Associated Theatres Ltd v Jones (HM Inspector of Taxes) (1971): A Delphic Pronouncement and a Fundamental Tension’ in J Snape and D de Cogan (eds), Landmark Cases in Revenue Law (Oxford, Hart Publishing, 2019). There are of course other important exceptions, such as the overlap of employment taxation and labour law.

Interim Conclusions 163

V. Interim Conclusions The contents of this chapter are closely relevant to the basic claims set out in chapter one.163 First, there is clear and substantial overlap between the concerns of tax and constitutional lawyers with respect to international and European taxation. Secondly, the content of current tax debates not only reflects but is dominated by wider constitutional challenges such as the survival of states and state revenues in the context of globalisation, European integration and Brexit. Thirdly, constitutional law is generally well-equipped to process the challenges of international and European taxation, but arguably does not have the apparatus to de-escalate the Irish border crisis. In this situation the clarity required by revenue collection and associated activities has conflicted deeply with the ambiguity that might have assisted a negotiated political solution. Fourthly, the context-dependence of the relationship between tax and the wider constitution is of the essence of this c hapter. Customs duties have played a critical role in the UK’s departure from the EU but revenue considerations have otherwise been rather less central to the evolution of domestic constitutional law than the energy of some of the international tax debates might have led us to believe. Fifthly, the matters reviewed in this chapter indicate a certain flexibility in the tax discipline, with customs duties significantly more difficult to defend as the exclusive terrain of tax specialists than the standard fare of income and corporation tax.

163 Refer

to this volume, 27.

6 Constitutional Disruption There are many different threads that could be pulled from the case studies in chapters two to five, indeed enough to provide material for a much longer book. Instead what I want to do with these final pages is to revisit the literature review in chapter one and ask why the state building and constitutional aspects of modern UK taxation have been so overlooked. In particular, I would like to interrogate the idea that tax systems in the developed world are inherently less interesting from a state building perspective than those at earlier stages of development.1 This view seems to be at odds with the profound sense of instability in the UK at the time of writing, as well as the provisional conclusions to chapters two to five that suggest strong overlaps between tax, state building and constitutional law problems. In order to explore this apparent mismatch between existing scholarship and the findings of this book, the first section below looks again at the matter of tax and development and considers its relevance to the UK. The second and third sections look in more depth at two themes in the development literature that are highlighted by Deborah Bräutigam, namely the securing of taxpayer consent and the building of institutions. The fourth, fifth and sixth look in turn at the slow pace of reform of Westminster institutions, their ability nonetheless to accommodate change and the instances in which existing constitutional structures are experiencing disruption. In the eighth section it is argued that constitutional events involving tax tend to be rather dangerous and we should be grateful, not concerned, about the relative invisibility of modern taxation to constitutional lawyers. In the ninth section some comments are made about the distinctiveness of tax law as a discipline, and the tenth concludes.

I. Tax and Development In her introduction to Taxation and State-Building in Developing Countries, Deborah Bräutigam identifies two particular areas of importance for an analysis of state-building, being ‘the rise of a social contract based on bargaining around tax, and the institution building stimulus provided by the revenue imperative’.2 1 Many thanks to Dr I Lindsay for reporting this view to me at the TRN conference in September 2019. 2 D Bräutigam, O-H Fjeldstad and M Moore (eds), Taxation and State-Building in Developing Countries: Capacity and Consent (Cambridge, Cambridge University Press, 2009) 1.

Taxpayer Consent 165 She observes that ‘[p]rogress in the first area may foster representative d emocracy’ whereas ‘[p]rogress in the second area strengthens state capacity’.3 At first sight, it seems obvious that these themes only have limited relevance to the UK in the early twenty-first century. We are fortunate to have a long-established and relatively advanced tax system, encompassing efficient and incorrupt tax administration, mechanisms for reducing evasion and avoidance, high compliance levels, formalised systems of accounting and so forth. This is not to say that problems do not exist, yet the UK’s position is enviable compared to many contemporary developing countries. It might therefore be argued that the key point of interest from a state-building perspective is in how the UK managed to create a highly functioning tax system worthy of a developed state. This having been achieved at the latest by the early nineteenth century, the later evolution of the tax system is less significant though still interesting for fiscal, political and social historians. It will be obvious to readers that I take a different view and instead see advanced tax systems as precious and contingent achievements, which can deteriorate as well as improve. State-building in the UK, as elsewhere, is an ongoing process rather than a once-and-for-all event. Nevertheless, the present book undeniably has a more pathological, and less constructive, flavour than Taxation and State-Building in Developing Countries.4 The main focus is not on how to build a workable tax system but on identifying faultlines in the ways in which our legal system processes tax problems, or in other words working out where things are liable to go wrong. This outlook, if not pessimistic then certainly vigilant, underlines not only the analysis in this book but also the choice of topics. Each of chapters two to five deals with aspects of the tax system that could conceivably be unrecognisable within 10 years.

II. Taxpayer Consent The discussion of taxpayer consent in Taxation and State-Building in Developing Countries5 is strikingly practical, despite Bräutigam’s reference to social contract theory. For instance, Joshi and Ayee are not so much concerned with John Rawls or Jean-Jacques Rousseau as the systematic consequences of the negotiations between the Ghana Private Road Transport Union and the Ghanaian government.6 A similar emphasis on the detail of which taxpayers are consenting, to what and under what conditions can also be found in much of the historical literature. For instance, a key part of Charles Tilly’s thesis in Coercion, Capital, and European States7 is that factors such as the concentration of population and the relative power 3 ibid. 4 ibid. 5 Bräutigam, Fjeldstad and Moore, above n 2. 6 A Joshi and J Ayee, ‘Associational taxation: a pathway into the informal sector?’ in Bräutigam, Fjeldstad and Moore, above n 2, 195. 7 C Tilly, Coercion, Capital, and European States, AD 990–1992 (Cambridge MA, Blackwell, 1990).

166 Constitutional Disruption of merchants and landlords were closely intertwined, not only with the most viable methods of extracting revenue, but also with the more basic question whether European states throughout history needed to secure consent to government at all.8 These close linkages between particular social and economic circumstances and broader themes of taxation, consent and democracy are also emphasised by the new fiscal sociology as explained by Martin, Mehrotra and Prasad, as well as by the older traditions of elite theory, modernisation theory and militarist theory on which they draw.9 At least in this practical sense, it is difficult to argue that the developed world has transcended questions of consent and revenue bargaining, even though a high proportion of revenues are collected through automatic, uncontroversial and largely unnoticed systems such as PAYE. As we have seen throughout this book, there are continuing debates on the balance between revenue extraction and property rights,10 tax and trust,11 the impact of BEPS on state-taxpayer relations, the taxation of the ‘1 per cent’ and the control of avoidance. The devolution of tax competences to Scotland and Wales is also consistent with a shift of allegiances or at least an increasingly complex layering of loyalties. Perhaps the most powerful example in the book, though, is the transformation of taxpayer protection that was discussed in chapter four. In the twentieth century, it might have been argued that taxpayers enjoyed certain exceptional protections under the law (eg, literal interpretation) in recognition of their special role in funding the state. These have now largely disappeared, replaced by a more ordinary system of administration whereby HMRC enjoys wide discretionary powers but is subject to internal review, a relatively generous appeals system and judicial review. These shifts are especially significant for present purposes as they not only engage the ideas of development scholars about consent and revenue bargaining but also key points of constitutional law as defined in chapter one.12 It will be recalled that the following functions of constitutional law were outlined with reference to David Feldman’s work: 1. to establish institutions and provide them with functions, powers and duties; 2. to prevent, restrain and redress improper conduct on the part of those institutions;

8 For an entertaining account of the relationship of property, politics, culture and constitution at an important moment in the eighteenth century, see J Snape, ‘Constitution: Handel’s Solomon and the constitution at Covent Garden’ in R Probert and J Snape (eds), A Cultural History of Law in the Age of Enlightenment (London, Bloomsbury, 2019). 9 I William Martin, AK Mehrotra and M Prasad, ‘The Thunder of History: The Origins and Development of the New Fiscal Sociology’ in I William Martin, AK Mehrotra and M Prasad (eds), The New Fiscal Sociology: Taxation in Comparative and Historical Perspective (Cambridge, Cambridge University Press, 2010) 7–11. 10 Refer to this volume, 121. 11 eg B Peeters, H Gribnau and J Badisco (eds), Building Trust in Taxation (Cambridge, Intersentia, 2017). 12 Refer to this volume, 7.

Institution Building 167 3. to confer legitimacy on otherwise controversial acts (so distinguishing, for example, an assault from an arrest); and 4. to allow for flexibility in the face of underlying social and political change.13 The tax authorities have been combined into a new institution, HMRC, which is culturally distinct from the old Inland Revenue and upon which a very wide range of new powers has been conferred (function 1). The width of these powers complicates the identification and restraint of improper conduct (function 2) and confers legitimacy on official behaviours that would have shocked taxpayers in earlier ages and certainly before the watershed moment of IRC v Rossminster14 (function 3). They also both reflect and reinforce a profound shift in taxpayer-state relations which is likely to reflect the ease of taxpayer exit in a globalised world and the continuing need of governments for reliable revenues (function 4).

III. Institution Building The second theme highlighted by Bräutigam, concerning the building of institutions in response to the revenue imperative,15 is easier to relate to the central concerns of this book. Returning to the scheme of constitutional functions, institution-building engages function 1 by definition, and is likely also to engage functions 2 to 4. The most obvious examples from this book are the self-conscious creation of tax institutions in Scotland and Wales, the less important but still deliberate development of regional tax capacity in parts of England and the addition of the OTS and the House of Lords Finance Bill Subcommittee to the apparatus of central government. However, it is not only institution-building that is potentially relevant here but also steps taken to protect, enhance or even wind down existing institutions. Examples might respectively include attempts to protect against base erosion, enhance the powers and administrative practices of HMRC and the efforts to extricate the UK from certain EU initiatives. As we have seen in chapter five, even in this institutional context there is a threshold question of whether admittedly important developments have any perceptible impact on the constitution. The BEPS project, in particular, is seminally important for tax specialists but not yet for constitutional lawyers. This idea of a threshold point suggests an interesting connection between the two key themes, drawn from Bräutigam, of taxpayer consent and institution building. This is that it is easier to grasp the legal consequences of crises of taxpayer consent at the point at which they trigger institutional change. This is most clearly illustrated by the events of 1909, in which the attenuating democratic credentials of the House of Lords were put to the test by its rejection of the People’s Budget.

13 D

Feldman, ‘None, one or several? Perspectives on the UK’s constitution(s)’ [2005] CLJ 329. v IRC, ex parte Rossminster [1980] AC 952. 15 ibid, 3. 14 R

168 Constitutional Disruption At the exact moment of this rejection it would have been difficult to argue that the constitution had changed according to the four functions listed above. However, after the reassertion of older understandings about the role of the Lords in financial matters and the enactment of new rules in the Parliament Act 1911, it was undeniable that there had been a constitutional shift. Perhaps something similar is taking place with tax devolution, in the sense that the rearrangement of tax powers is helping to concretise wider movements in political allegiances between the UK and its constituent parts. These underlying shifts are difficult to pinpoint using legal materials, but once they are institutionalised, lawyers not only can but must change our account of the legal system to reflect the new reality. This brings us back, by a long excursus, to something not too dissimilar to the approach of Prosser in The Economic Constitution.16 In chapter one it was noted that his primary concerns were to map and to evaluate the institutions dealing with economic matters in the UK constitution. This lends his approach something of the character of a snapshot of a particular moment in time, which contrasts at least in emphasis with the attempt in this book to present state-building and constitutional law as essentially dynamic processes. Yet the implication of the discussion immediately above is that state building is most noticeable and relevant to constitutional lawyers once it reaches the stage of being reflected in institutional change. Moreover, the instances of very significant institutional change are strikingly discontinuous, to the extent that the Parliament Act 1911 can without irony be described as a recent event in the constitutional history of taxation. The consequence is that, whilst Prosser and I have very different attitudes towards our material, our accounts of legal and institutional outcomes are strongly consistent.

IV. Calm at Westminster Of all the legal arrangements reviewed within this book, the most static are those relating to central government. This sense of continuity is most evident from the discussion in chapter three of the scrutiny and reform of tax legislation, but can also be seen in the maintenance of central government controls over devolved and local taxation in chapter two and over the reception of international legal material in chapter five. At the danger of repetition, the argument is not that the UK government is in full control of the political, social and economic trends underlying the devolution, localisation or globalisation of tax. The point is rather that these trends are largely being accommodated through existing legal and constitutional structures, and that ostensible change in these structures often conceals continuities in the legal competences of central government.

16 T Prosser, The Economic Constitution (Oxford, Oxford University Press, 2014), discussed in this volume, 19.

Calm at Westminster 169 Whether or not these legal continuities reflect the underlying ‘realities’ that might be revealed by political scientists, sociologists or others, they are nevertheless significant in their own right. They are also consistent with the small ‘c’ conservative approach to tax law that I have identified elsewhere, which is suspicious of abstraction and is instead focussed on reducing risks to the revenues and on ‘keeping the show on the road’.17 At first sight a very different sense is conveyed by Sven Steinmo’s recent edited collection, The Leap of Faith: the Fiscal Foundations of Successful Government in Europe and America.18 This is a wonderful title that quickly and powerfully conveys the sense that a functioning tax system is more than the sum of its parts, and that it implies a degree of trust in government that cannot be secured by technical means alone. This is a convincing argument that is supported by the content of Steinmo’s book as well as by other recent literature.19 Nevertheless, one of the lessons of the present study is that there is also a tradition of keeping the amount of leaping to a minimum. For example, academic recommendations for reform are vitally important in reminding us that there are alternatives to our present system, which might allow high levels of revenue to be generated with reduced levels of economic distortion, political resistance and administrative difficulty. Yet the actual implementation of the more radical schemes might lead tens of billions of pounds worth of tax revenues to disappear overnight. They might not. Nobody really knows. It is therefore not especially surprising that the routes for academics to influence UK tax law are heavily restricted, even or perhaps especially for high-profile projects such as the Meade Review20 and Mirrlees Review.21 There seems to be insufficient faith, all considered, in order to make these leaps. The academic contributions to the Tax Law Rewrite and the GAAR22 are only partial exceptions given that the former was intended to leave the substance of the law unchanged and the latter was designed specifically with protection of revenues in mind.23 Other routes for well-meaning outsiders to become involved in tax policymaking in central government are likewise limited, as we have seen in chapter three. There are scant opportunities for Parliamentary committees to contribute meaningfully to tax policy, the OTS is closer to government than the Law Commissions, the devolved institutions can be overridden in pursuance of Parliamentary sovereignty and most of the OECD’s initiatives are 17 See D de Cogan, ‘Michael Oakeshott and the conservative disposition in tax law’ in M Bhandari (ed), Philosophical Foundations of Tax Law (Oxford, Oxford University Press, 2017). 18 S Steinmo (ed), The Leap of Faith: the Fiscal Foundations of Successful Government in Europe and America (Oxford, Oxford University Press, 2018). 19 See eg Peeters, Gribnau and Badisco, above n 13. 20 J Meade, The Structure and Reform of Direct Taxation: Report of a Committee chaired by Professor JE Meade for the Institute for Fiscal Studies (London, George, Allen & Unwin, 1978). 21 Institute of Fiscal Studies, Tax by Design: the Mirrlees Review (Oxford, Oxford University Press, 2011). 22 Finance Act 2013, Part 5. 23 G Aaronson, GAAR study: a study to consider whether a general anti-avoidance rule should be introduced into the UK tax system (November 2011), available at https://webarchive.nationalarchives.gov. uk/20130102175714/http://www.hm-treasury.gov.uk/d/gaar_final_report_111111.pdf, section 3.

170 Constitutional Disruption heavily filtered before they reach anywhere near domestic legal effect in the UK. By far the closest thing to a disruptive external influence on central tax policymaking has been EU membership and even this is difficult to assess during this intermediate stage of the Brexit processes.

V. The Flexible Constitution If one of the stereotypes of the UK constitution is that it changes very slowly, another, already noted in the previous section of this chapter, is that it is peculiarly flexible in the face of underlying political and social change. There is some evidence for this famed adaptability in the tax field over the last, turbulent, decade. The most powerful example is perhaps the effectiveness of existing constitutional filters to deal with global developments, including both the phenomenon of BEPS and the OECD’s response to it. Even such a fundamental change as the introduction of multilateralism into the tax treaty network has been accommodated with only minor changes to domestic law, let alone provoking major constitutional upheavals. The Brexit processes have raised more fundamental questions about the structure of the UK, but with the partial exception of the Irish border, the tax implications of Brexit largely depend on the resolution of wider political questions rather than the other way around. The transfer of tax competences to Scotland and Wales, as seen in chapter two, raises complex questions of allegiance and institutional competence. What is remarkable, though, is the extent to which sometimes quite acrimonious debates about the status of Scotland have been translated into tax devolution measures that are cautious and even incremental in nature. The point about small ‘c’ conservatism and the accommodation of change within existing or lightly modified legal structures, therefore, applies even to matters of such epochal importance as the funding of what might soon become a new independent state.

VI. Constitutional Disruption These conservative tendencies help to contextualise some of the more colourful recent developments, where there is some evidence of constitutional innovation. Tax devolution is once again a good place to start, as it disrupts previous understandings of our unitary tax system, but at the time of writing is still relatively limited even in Scotland. Undoubtedly, the major impetus for the successive rounds of devolution since 1998 has been political. Yet it has been argued in this book that tax plays a distinctive role in building policy and administrative capacity in devolved government, altering the matrix of relationships between the UK, Scotland and Wales and building the financial foundations of potential future states. In this constructive, state building sense, devolved taxes are constitutionally

Constitutional Disruption 171 significant despite their vulnerability to political developments, continued central government interference and even the possibility of outright override by the sovereign UK Parliament. If the disruptive potential of tax devolution is largely yet to be realised, there has been more immediate volatility in the field of taxpayer protection. As discussed above and in chapter four, there has been a marked shift in the balance between the pursuit of the public interest and the protection of property and other rights of taxpayers. This seems to have arisen, not from a deliberate recalibration of the taxpayer-state relationship, but rather from a cumulation of incremental responses to concerns about tax avoidance, globalisation and administrative efficiency, not to mention the temptation on governments to introduce anti-avoidance measures as a way of flattering revenue projections. Whether these factors justify the sheer volume of new administrative techniques is obviously a different matter. Nevertheless, except on points of detail it seems futile to complain about them or to mourn the now long-departed (and long-disputed24) ideas of literal or protaxpayer interpretation. If anything, the newfound readiness to articulate the balance between the public interest in raising revenues and restraining avoidance and the need to ‘safeguard’ the private interests of taxpayers is welcome, for making explicit what is stake on both sides; the literalist approach of course downplayed the public interest almost to vanishing point at least post-enactment. Tax has therefore come closer into line with the modern paradigm of administration law whereby the powers of public authorities are interpreted with a view to protecting private interests, with the intensity of the protection depending on factors such as the relative weight of public and private interests as well as the institutional capacity of the courts to review the types of decisions in question. Tax still retains some unusual features, such as a heavy reliance on primary legislation and the questionable restrictions that Ferrazzini25 places on access to the procedural protections of Article 6 ECHR. Nevertheless, the decline of exceptional methods of interpreting and adjudicating tax legislation represents a distinct shift in approach to the four constitutional functions discussed in chapter one. More tentatively, it is tempting to speculate whether there is a deeper story here, perhaps involving increasingly aggressive enforcement activity by tax authorities weakened by the ease of taxpayer exit in a globalised world.26 This cannot be proved or disproved based on the limited evidence contained in the present book but would be strongly analogous to the examples of revenue bargaining that are discussed throughout Taxation and State-Building in Developing Countries.27 The strongest evidence of tax law being bound up with wider constitutional changes has been found in the Irish border context as discussed in chapter five. 24 See eg H Monroe, Intolerable Inquisition? Reflections on the Law of Tax (London, Stevens, 1981) 52. 25 Ferrazzini v Italy (App no 44759/98) [2001] STC 1314 (2002) 34 EHRR 45, discussed further in this volume, 115. 26 Thanks to Professor R Ismer for suggesting similar ideas in conversation at the University of Erlangen-Nuremberg. 27 Bräutigam, Fjeldstad and Moore, above n 2.

172 Constitutional Disruption As noted in that chapter, the problems at the border are not purely about tax but involve various areas of law and policy, most relevantly trade policy. All the same, customs duties are a form of public revenue, and to a large extent the disruption that they have caused to Brexit negotiations is referable to a typical characteristic of taxes. That is, they require precision as to the items or activities being taxed, tax rates, timing of the charge, means of administration and so forth. The possibility that customs borders might re-emerge within the British Isles brings with it these precise questions about the taxation of cross-border trade, undermining the helpful ambiguity that the Good Friday Agreement encouraged around questions of national and sectarian identity. It is widely believed that mistakes around borders could lead to a resurgence of political violence, in other words precisely the type of disruption that we would wish constitutional law to prevent in the first place.

VII. Best Hidden These examples help us to piece together some ideas about the relevance of tax to the UK constitution in the early twenty-first century. A point of central importance is that the evidence seems to support the idea that a high premium is put on stability and predictability of revenues. This is also consistent with the observation drawn from Schumpeter, that revenues are critical to the creation of a state but once secured become the ‘serving tool’ of that state, meaning that most officials can then turn their attention to other urgent matters. Anything that reintroduces tax considerations as a significant threat to the ordinary operation of government is therefore extremely undesirable, even taking into account the ability of most modern states to cover emergency and even some long-term needs through borrowing and other sources of income.28 Even in those instances where revenues are under serious and long-term threat, for example in relation to base erosion and profits shifting, the legal and constitutional responses have been strikingly incremental. There is no deep appetite in government, it seems, to solve one set of problems with radical reforms that risk generating new ones. Where, then, does this leave the claim throughout this book that there is something worthy of discussion in the relationship between tax and the UK constitution? It will be recalled from chapter one that two situations were particularly relevant to this claim. The first is where political actors amplify and influence wider controversies by channelling them into disputes about taxation. The second, at first sight

28 This has not formed a part of the present study but is examined in more detail in T Prosser, The Economic Constitution (Oxford, Oxford University Press, 2014) ch 4. The balance between taxation and other sources of public resources may itself be of significance for state building. For example, M Moore observes that large non-tax revenues such as natural resource rents and aid inflows may weaken governance by reducing the need for revenue bargaining between governments and taxpayers: M Moore, ‘Between coercion and contract: competing narratives on taxation and governance’ in Bräutigam, Fjeldstad and Moore, above n 2.

A Distinctive Window 173 contradictory, is where MPs, courts and others are conspicuously deferent to the protection of public revenues. These suggestions were made tentatively and in the context of seeking evidence of the constitutional significance of taxation, but in the light of the material reviewed in chapters two to five seem to have significant explanatory power. In particular, whilst I have not found overwhelming evidence of ‘tax exceptionalism’29 or the routine application of non-standard legal doctrines to the tax field, there are a wealth of situations where a tendency in the law to protect revenues helps to explain outcomes that would otherwise look odd. Many of these can be found in the present book, but as also mentioned in chapter one, I have made no attempt to be exhaustive and other examples may include the ongoing controversies around the restitution of overpaid tax.30 Another way of putting the same point is that the revenue function, so critical to the success of a state but at most times subsumed into the ordinary legal system, is indeed best subsumed for as long as possible. This holds even for cases such as BEPS where there are serious external threats to the revenues themselves. As long as these threats can be addressed with no or minimal change to the basic structure of the legal and political system (in other words, constitutional law) there is at least a possibility that they can be contained. It is when tax problems expose the limits of constitutional law that they turn into events of historic importance. The People’s Budget crisis of 1909 sharply illustrated the limits of the constitutional understandings surrounding the House of Lords, whilst customs duties are presently testing the limits of the Acts of Union of 1800 and of the Good Friday Agreement. These observations start to resolve the underlying questions of this book into a statement of the obvious. The reason that tax has such historical importance to the UK constitution whilst contemporary events are not usually seen in this light is simply that there are very good reasons indeed for not making the basic finance function of the state too exciting. The consequences can be quite unpleasant when this task of containment fails, and equally tax may not be the best arena for radical experimentation.

VIII. A Distinctive Window With these observations in mind, we can see that tax offers a distinctive window into constitutional law. The overlap between the two fields is usually limited, but tax considerations occasionally regain critical significance for the basic structuring of our political and legal arrangements. For constitutional lawyers, therefore, the process of ‘following the money’ provides a useful technique for discriminating between background threats and more urgent faultlines that have the potential to develop into more immediate constitutional crises. For tax lawyers, the way

29 Refer 30 Refer

to this volume, 20 n 103. to this volume, 27 n 146.

174 Constitutional Disruption of looking at revenue problems in this book has been both unusual and utterly familiar. The topics covered within chapters two to five are widely discussed although they are not always well served by the standard textbooks. The portrayal of tax as one of the key constituent parts of a state is also far from novel, and features strongly in historical and development scholarship if less so in the legal literature. What is less conventional is to discuss the law relating to Scottish devolution, the Office of Tax Simplification, taxpayer protection, Brexit and BEPS in the same place, as distinct but connected aspects of the evolving twenty-first century UK tax settlement. Following on from this, an obvious question is whether it has been intelligible to restrict the focus of the present book to taxation at all, or whether I ought to have followed Prosser in extending my enquiry to connected questions of public borrowing, expenditure, procurement, social welfare and so forth. My approach has been to emphasise the special centrality of revenue-raising to the existence and basic functioning of states, without insisting on any dogmatic borderlines between tax and other fields of scholarship. I decided to focus on certain problems in chapter two to five on the basis of their relevance to taxation and to the constitution. I could have chosen other case studies, some of them could have been outside the tax field and they might have supported slightly different conclusions. There is, however, a more fundamental difficulty in defending a focus on taxation. One of the key features of tax identified in the present book is its hybrid role in helping to balance some of the most important of all individual rights (including property but also eg non-interference in domestic affairs31) against some of the most important of all public interests (including the basic financial stability of the state but also eg the provision of public services).32 This hybrid role, it is suggested, tends not to be taken seriously enough in the UK either by technical specialists or by those who focus instead on the social and distributional aspects of taxation. Both aspects of taxation are irreducible, even if one or the other might recede into the background depending on whom or what is being asked. Yet once we have reached this point, we are confronted by the difficulty that this type of hybridity is not unique to tax or even to fiscal policy but is also shared by questions of national security, terrorism, prisons, planning and even charity regulation.33 The tensions between public and private interests in these areas are typically processed by lawyers in the form of administrative law. This can sometimes be obscured by special features of tax and in particular the tendency to rely heavily

31 This is not to assume that state neutrality is either possible or desirable, in tax law as in anything else: see eg A Mumford, Fiscal Sociology at the Centenary: UK Perspectives on Budgeting, Taxation and Austerity (Cham, Palgrave Macmillan, 2019) ch 7. 32 Refer also to J Snape and D de Cogan, ‘Introduction: on the Significance of Revenue Cases’ in J Snape and D de Cogan (eds), Landmark Cases in Revenue Law (Oxford, Hart Publishing, 2019) 23.26. 33 See generally K Chan, The Public-Private Nature of Charity Law (Oxford, Hart Publishing, 2016); M Stewart, ‘The boundaries of charity and tax’ in M Harding, A O’Connell and M Stewart (eds), Not for Profit Law (Cambridge, Cambridge University Press, 2014).

Concluding Comments 175 on primary legislation, which still cannot be struck down under English law.34 This complicates the application of administrative law principles and reflects the fact that, no doubt influenced by Articles 1 and 4 of the Bill of Rights, the responsibility to authorise the detailed elaboration of tax law has fallen to Parliament itself rather than being delegated to Ministers and officials as in most areas of administrative law. This leaves an unusually wide space for interpretation as to whether tax is (as I would hold) a type of public law with special features reflecting the centrality of finance to state building or instead a sui generis field that operates outside the mainstream of both public and private law. The tax exceptionalism debate, famously, depends heavily upon perspective, and this is perhaps why.

IX. Concluding Comments The literature relating to state building and tax law has something of an end-of-history flavour. State building is something that has been achieved in the UK and elsewhere in the developed world, so that the main point of interest is in the history of how we arrived at this point. The main group of scholars who take a different view are critical theorists, who explain that states have been constructed in ways that institutionalise biases against women, ethnic minorities, the poor and others. It is a reasonable rule of thumb that the basic elements of a developed state can be taken for granted in the UK, but it is no more than that. To use an analogy, the foundations of a house do not stop being foundational simply because the house has stood for several centuries. Likewise, tax may not be an everyday topic of constitutional law, but that is something to be thankful for rather than to assume. Just like foundations, we would miss our infrastructure of tax law and administration if it were not there. At the point of writing, some of the basic assumptions surrounding the relationship between tax, state, citizens and taxpayers seem to be in a degree of trouble. Perhaps they can be repaired, or perhaps we will end up with a different kind of house to the one to which we have become accustomed. This is not primarily a story about collapse, though, or at least not yet. A parallel narrative is just how little is changing. The OECD’s multilateral treaty is constitutionally orthodox and even tax devolution to Scotland has been more gradual and subject to central UK control than might be assumed from some of the surrounding rhetoric. The UK constitution is well known for its combination of resistance to some types of change and flexibility in the face of others, and this seems to be borne out in the tax field. This may sound congratulatory but is more a statement of the obvious, that substantive and constitutional change are both linked and distinct from each other. 34 Subject to R v Secretary of State for Transport Ex p. Factortame Ltd (No.2) [1991] 1 AC 603, discussed in this volume, 133.

176 Constitutional Disruption This book has been written in the middle of an ongoing stage of history, and no doubt the coming years will bring further developments in the UK’s relationship with the EU, the response to BEPS and the internal structure of the UK. There may well be some surprises that cannot easily be predicted now. Climate change may affect the context in which states and tax systems must operate. Some of these challenges will be dealt with in a gradual, conservative manner, whilst others may recast fundamentally the manner in which states collect revenues from persons within their scope. The constant patching up and occasional reinvention of the tax system continues apace.

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INDEX accelerated payment notices (APNs), 110, 112 accountability, 20–21, 26 local taxation, 53–54 ministerial accountability, 79–80 Scottish Parliament, 40 tax devolution, 40, 46–47, 51, 53–54, 59 Welsh Assembly, 46–47 aggregates levy: fiscal federalism, 59 Scotland: Calman Commission, 40 Silk Commission, 47 Smith Commission, 42 Wales, 48 Air Departure Tax (Scotland) Act 2017, 42 air passenger duty (APD): fiscal federalism, 59 Northern Ireland, 52 Scotland: Calman Commission, 40 Silk Commission, 47 Smith Commission, 42 Wales, 48 allowances, 22 disallowance of depreciation, 104–5, 107 wear and tear of machinery and plant, 104–5 anti-avoidance, 107–8, 120, 123, 128, 140–41, 171 EU law, 130 marketed tax schemes, 109–10 tax treaties, 146 see also Disclosure of Tax Avoidance Schemes regime; General Anti-Avoidance Rule Anti-Tax Avoidance Directive (2016), 130 appeals, 104–5, 107, 112, 119 cash-flow advantage and, 110 Court of Justice of the EU, 142–43 General Anti-Avoidance Rule, 112 HMRC powers, 121, 166 income tax appeal, introduction of, 39, 88, 104

Scotland, 43 Wales, 49 arms-length regulation, 135–36 asset depreciation: disallowance of depreciation, 104–5, 107 Barnett formula: Northern Ireland, 52 Scotland, 43–44 Wales, 46, 47 base erosion and profits shifting (BEPS) project, 130, 144–46 information flow between states, 148–50 multilateral instruments, 146–48 Bill of Rights (1688), 6, 16–17, 23, 104 Parliamentary control principle, 69–70, 75, 76, 77, 125, 136, 143, 150, 175 Bowles v Bank of England (1913), 6, 17, 105 Brexit, 136–37, 160–61 complexity, 151–53 customs duties, 152 authorised economic operators, 154 Common External Tariff, 154 entry summary declarations, 154 simplified procedures, 154–55 Irish land border, 2, 28 citizenship and nationality issues, 156 common travel area, 156 customs checks, 52, 157–59 governance, 156–57 length and permeability, 156 most-favoured nation principle, 159–60 regulatory alignment, 152–53 state aid law, 152 status of EU law, 137–38 tax administration, 152–53 VAT, impact on, 152 workplace discrimination issues, 152 budget process: Budget speech, 70, 72 Parliamentary consent, 70–71 business improvement districts (BIDs), 54 business rates retention scheme, 54–56 Business Rates Supplements Act 2009, 56

192 Index Calman Commission (2007): aggregates levy, 40 air passenger duty, 40 income tax, 40, 41 landfill tax, 40, 41 Scotland Act 2012, 41 stamp duty land tax, 40, 41 capacity-building: control over revenue, 61 establishing credibility, 61–62 move towards fiscal federalism, 62 path-dependence, 62 taxation and the political agenda, 61 capital allowances, see allowances Capital Allowances Act 2001, 107 capital gains tax: EU harmonisation measures, 152 origins, 85–86, 93 self-assessment, 110–11 Silk Commission, 47 taper relief, 94 tax treaties, 141 cash-flow advantage, 110 Code of Practice on Taxation for Banks, 111 Commission for Further Devolution of Powers to the Scottish Parliament, see Smith Commission Commission on Scottish Devolution, see Calman Commission common consolidated corporate tax base (CCCTB), 145 common external tariff (CET), 152, 154 common travel area (CTA), 156 Commons committees: budgetary process, 73–75 Public Accounts Committee, 74–75 complexity of tax law, 3–4 consent of Parliament, see Parliamentary control principle consent of taxpayers, 105 revenue bargaining, 165–67 constitution of the UK: Bill of Rights, 16 contemporary times, 18–19 institutional focus, 19–22 political constitution, 22–23 deliberative design, 24–25, 26 economic constitution, 26 Glorious Revolution, 16 Magna Carta, 15 Mirrlees Review, 24–25 Parliament Act 1911, 16

Petition of Rights, 15 R v Hampden, 15–16 tax devolution, 63 capacity building, 61–62 central control, 62–63 current tensions, 33–37 federalism and, 59–61 high politics and, 58–59 historical overview, 31–33 institutions given previously EU legislative powers, 36–37 localism, 37–38 Miller No. 1 case, 34–35 Northern Ireland, 49–53 Scotland, 38–45 Sewel Convention, 28, 34, 45, 150–51 subnational devolution, 53–57 Wales, 45–49 West Lothian question, 35–36 Westminster supremacy, 33–34 see also tax devolution constitutional, meaning of, 8–9 constitutional change: impact of, 1–2 tax law’s role, 2, 27–30 see also reform procedures and pre-legislative scrutiny; tax devolution constitutional law issues related to tax, 6–9, 57–58, 172–75 flexibility, 170 international law issues, 131–33, 161–63 Brexit, 136–38, 151–54 customs, 154–55 ‘hollowing out’ of the state, 135–36 Irish border, 156–61 sovereignty, 133–34 legal continuity, 168–70 protection of taxpayers, 97–101 conciliating disagreements, 128–29 non-legal protection, 101 normative foundations, 121–23 private emphasis, 125–27 public emphasis, 123–25 reform procedures and pre-legislative scrutiny, 64–68, 92–93 multilayer aspects, 95 weaknesses, 93–95 resilience of UK constitution, 161–62 tax devolution: capacity building, 61–62 central control, 62–63 current tensions, 33–37

Index 193 high politics, 58–59 historical overview, 31–33 localism, 37–38 tax federalism, 59–61 vulnerability of UK constitution, 161–62 constitutional relevance of tax, 6–7 constitutions, function of, 7 consultation, 7, 33–34, 67 reform procedures and pre-legislative scrutiny, 82–85, 90 controlled foreign companies (CFCs), 142–43 cooperative compliance, 119–20 corporate income taxes, 140–41 corporation tax, 22–23, 140–41 EU law, 152 Court of Justice of the EU, 142–43 Northern Ireland, 52–53, 58 Office of Tax Simplification, 86 origins, 140 residence test, 88 self-assessment, 110–11 Wales, 47 Corporation Tax (Northern Ireland) Act 2015, 53, 58 Court of Justice of the EU (CJEU): appeals, 142–43 Brexit, 151, 153 corporation tax, 142–43 direct taxation, 134, 143 implied repeal doctrine, 137 criminal offences and criminality: European Convention on Human Rights, 116, 120, 124 penalisation of non-criminal conduct, 112–13 tax avoidance, 112 tax evasion, 111–12, 113 deliberate design, 24–25, 26 fiscal federalism, 25 depreciation: disallowance of depreciation, 104–5, 107 destination-based cash-flow tax, 140–41 direct taxation, 6 European Union, 130, 134, 142, 143, 151–52 base erosion and profits shifting, 146 disallowance of depreciation, 104–5, 107 Disclosure of Tax Avoidance Schemes (DOTAS) regime, 109–10, 113, 149 double reasonableness test, 120–21 double taxation, 131, 141, 145–46, 147

double taxation treaties, 13 dualism and monism compared, 131–32, 137–38, 141, 143, 150, 153 economic operator registration and identification, 154 entry summary declarations, 154 equality principle, 45, 127 EU law, 95 anti-avoidance, 130 Anti-Tax Avoidance Directive (2016), 130 corporation tax, 152 Court of Justice of the EU, 142–43 direct taxation, 142 income tax, 152 incorporation and harmonisation of tax provisions, 142–44 incorporation of international tax provisions, 142–44 indirect taxation, 142 primacy of EU law, 132–33, 143, 151, 161 status post-Brexit, 137–38 tax administration harmonisation measures, 109 European Communities Act (1972), 132–33, 137–38, 142, 151, 152 European Convention on Human Rights (ECHR), 95, 123–24, 132–33 incorporation into UK law, 99–100, 143 prohibition of discrimination (Art. 14), 117 protection of property (Prot. 1, Art. 1), 115, 125, 127, 128–29 right to a fair trial (ECHR Art. 6), 115–17, 120, 124–25, 129, 171 right to respect for private and family life (ECHR Art. 8), 116–17 Scotland, 135 European Court of Human Rights (ECtHR), 115–17 non-justiciability principle, 124, 128–29, 145 European Court of Justice, see Court of Justice of the EU European Economic Community (EEC), 133, 137, 139–40 European Union (Notification of Withdrawal) Act 2017, 138 extra-statutory concessions, 4, 88 Finance Acts: base erosion and profits shifting, 142 generally, 17, 71, 72 Finance (1909–10) Act 1910, 106

194 Index Finance Act 1922, 107 Finance Act 1994: self-assessment, 110 Finance Act 2012: devolution of air passenger duty to Northern Ireland, 52 Finance Act 2013: tax residence, 88 Finance Act 2014: accelerated payment notices, 110 breaches of Code of Practice on Taxation for Banks, 111 follower notices, 112 Finance (No.2) Act 2015 asset freezing, 112–13 Finance Act 2016: Office of Tax Simplification, 86–87 Finance (No.2) Act 2017: loan charging, 113 Finance Act 2018: tax treaties, 147–48 fiscal federalism, 25–26, 59–61 capacity building, 62 tax devolution compared, 38, 45, 46–47, 58–59, 62 Fiscal Framework: Scotland, 44–45 Wales, 49 Fixed Term Parliaments Act 2011, 71 Fleet Street Casuals case, 107–8, 110–11 follower notices, 112, 129 fragmentation of the tax system, 150–51 General Anti-Abuse Rule (UK), 108, 114 appeals, 112 double reasonableness test, 120–21 European Convention on Human Rights, 129 General Anti-Avoidance Rule (Scotland), 43 General Anti-Avoidance Rule (Wales), 47–48 Glorious Revolution (1688), 1, 16, 151 Good Friday Agreement, 50, 156–57, 172, 173 goods and services tax, 10 government reform procedures and pre-legislative scrutiny, 77 consultation, 82–85 HM Revenue and Customs, 78–82 HM Treasury, 78 Office of Tax Simplification, 86–87 royal commissions, 85–86 Government of Wales Act 1997, 33, 46–47, 48

HM Revenue and Customs, 6–7 administrative protections for taxpayers: Professional Standards Committee, 118 statutory review of decisions, 119, 166 Taxpayer Charter, 118 cooperative compliance, 119–20 increasing powers, 114, 121, 129, 135, 149, 151, 166, 167 accelerated payment notices, 110 cash-flow advantages, 110 conduct notices, 113 follower notices, 112 merger of Inland Revenue and Customs & Excise, 22, 82–83, 108–9, 167 ministerial responsibility, 66–67 policy formulation and development, 78–82 prioritising enforcement activities, 122 HM Treasury, 6–7 Office of Tax Simplification, 91 policy formulation and development, 67, 78–82 tax devolution, 38, 63 rate-varying powers, 48 Holtham Commission, 46–47, 51 House of Commons: budgetary process, 72–73 House of Lords: budgetary process, 75–77 Human Rights Act 1998, 143 implied repeal doctrine, 132–33 incorporation of ECHR, 99–100, 132, 143 taxpayer protections, 127 hypothecation, 83, 106 implied repeal doctrine, 98, 99, 132–33, 137 income tax, 103–4 appeals, 39, 43, 88 Bowles v Bank of England, see Bowles v Bank of England corporate income tax, see corporate income tax disallowances of depreciation, 104–5, 107 EU law, 152 origins, 21–22, 70–71, 102–3, 106, 139 Parliamentary process, 72–73 rates, 59, 62 Scotland, 39, 42 Royal Commissions, 85 Scotland, 61 appeals, 39, 43 Calman Commission, 40, 41

Index 195 rates, 39, 42 Smith Commission, 42 self-assessment, 110–11 tax treaties, 141 technical problems, 93–94 Wales, 47, 48 Income Tax Act 1842, 104–5, 107 Income Tax Act 1945, 107 incorporation of international tax provisions, 139–40 base erosion and profits shifting project, 130, 141, 144–46 corporate income taxes, 140–41 EU law, 142–44 tax treaties, 141–42 multilateral instruments, 146–48 Independent Commission on Funding and Finance for Wales, see Silk Commission indirect taxation, 10, 142 information sharing: anti-avoidance mechanisms, 109–10 Institute of Fiscal Studies, 20 institution building: revenue imperative, 167–68 interdisciplinary implications, 5, 162 Irish land border, 2, 28 citizenship and nationality issues, 156 common travel area, 156 customs checks, 52, 157–59 governance, 156–57 length and permeability, 156 most-favoured nation principle, 159–60 Irish Nationality and Citizenship Act 2004, 156 judiciary: reform procedures and pre-legislative scrutiny, 87–89 Land Transaction Tax and Anti-Avoidance of Devolved Taxes (Wales) Act 2017, 47–48 landfill tax, 59 Scotland, 40–41 Calman Commission, 40, 41 Wales, 47, 48 Law Commission Act 1965, 68 legal certainty, 105–6 implied repeal doctrine, 132 legal continuity, 94, 96, 143, 155, 168–70 legitimacy, 7, 19, 26, 166–67

legitimate expectations, 4, 117–18, 120 literal statutory interpretation, 105–6, 107–8, 113–14, 124, 128, 166, 171 Local Government Act 1985, 56 local taxation: accountability and fairness, 53–54 business improvement districts, 54 business rates retention scheme, 54–56 civic improvement, 106 devolution: Northern Ireland, 50, 53 Scotland, 53 Wales, 46, 53 enterprise zones, 54 equalisation, 54 regional fiscal autonomy, 53–57 Localism Act 2011, 38 macro-economic policy decisions, 8, 100, 122, 123–24, 129 Magna Carta (1215), 1, 6, 15–17, 23 Miller No. 1 case, 28, 34–35, 45, 60, 63, 136, 138, 151, 161 ministerial accountability, 79–80 ministerial responsibility principle, 66–67 Mirrlees Review, 22, 24–26, 79, 91, 96, 169 monism, see dualism and monism compared most-favoured nation principle, 159–60 National Audit Office (NAO), 74, 81–82 national insurance contributions, 76 Northern Ireland: air passenger duty, 52 allocation of tax powers, 50 corporation tax, 52–53 customs regulation post-Brexit, 52 fiscal autonomy, 62–63 Good Friday Agreement, 50, 156–57, 172, 173 Home Rule movement, 49–50 Irish land border, 2, 28 citizenship and nationality issues, 156 common travel area, 156 customs checks, 52, 157–59 governance, 156–57 length and permeability, 156 most-favoured nation principle, 159–60 local taxation, 50 reinstatement of direct rule, 50–51 sectarian tensions, 49–50 tax and high politics, 58 Northern Ireland Act 1998, 33, 50

196 Index Office of Parliamentary Counsel, 6–7 Office of Tax Simplification, 8, 86–87, 90, 174 Organisation for Economic Cooperation and Development (OECD), 95 base erosion and profits shifting project, 130, 144–46 information flow between states, 148–50 multilateral instruments, 146–48 double tax treaties, 13 fiscal federalism, 60–61 Parliamentary reform procedures and pre-legislative scrutiny: committee processes, 73–75 House of Lords, 75–77 Parliamentary control principle, 69–71 Parliamentary process, 72–73 Parliament Act (1911), 6–7, 11, 16–17, 21, 23, 28, 29, 71, 75–76, 77, 125, 168 Parliamentary control principle, 69–70, 75, 76, 77, 125, 136, 143, 150, 175 Parliamentary sovereignty, 31–32, 33, 35, 60, 65, 97, 100, 133–34, 135–36, 150–51, 161, 169–70 pay-as-you-earn, 93, 166 penalisation of non-criminal conduct, 111–13 People’s Budget (1909), 1, 6, 11, 28–29, 71, 75–76, 167–68, 173 Pepper v Hart, 108, 113–14 Petition of Rights (1628), 1, 15, 21 policy-making: accountability, 66 external input, 67–68 making law, 64–65 Parliamentary sovereignty, 65–66 principle of ministerial responsibility, 66–67 reform projects: Law Commission, 67–68 scrutiny, 65–66 see also reform procedures and pre-legislative scrutiny primacy of EU law, 132–33, 143, 151, 161 prohibition of discrimination (ECHR Art. 14), 117 property rights, 25–26, 104, 106, 149, 166 European Convention on Human Rights, 99, 115, 125, 127, 128–29

private emphasis within tax law, 125–27 public emphasis within tax law, 124 protection of property (ECHR Prot. 1, Art. 1), 99, 115, 125, 127, 128–29 protection of taxpayers, 97 constitutional law debates: judicial protection of the rights of individuals, 97 Parliamentary sovereignty and the rule of law, 97 positive rights of individuals, 97 Dicey, 97–99 European Convention on Human Rights, 99–100, 115–17 Human Rights Act, 99–100 internal review procedures, 101 judicial protection of the rights of individuals, 97, 99–101 evolution of tax administration, 101–2 accreting tax administration, 108–14 decentralised income tax administration, 102–4 finely detailed legislation, 107–8 juridification, 104–6 safeguards, 114–121 non-legal protection, 101 Parliamentary sovereignty and the rule of law, 97–99 safeguards, 114–15 administrative protections, 118–20 balancing, 120–21 double reasonableness text, 120–21 human rights law, 115–17 legitimate expectations, 117–18 Provisional Collection of Taxes Act (generally), 72 Public Accounts Committee (PAC), 74–75, 80–81, 85 public interest protection of taxpayers, 81, 102, 108, 115–17, 122, 125, 128, 171, 174 public law issues related to tax, 3–6, 89, 108, 124, 175 purpose of tax, 7–8 purpose of tax law, 5 purposive interpretation, 89, 108, 113–14, 123, 128 Ramsay case (1992), 88–89, 107–8, 114 Reform Act 1932, 37 reform procedures and pre-legislative scrutiny, 96

Index 197 government, 77 consultation, 82–85 HM Revenue and Customs, 78–82 HM Treasury, 78 Office of Tax Simplification, 86–87 Royal Commissions, 85–86 judiciary, 87–89 multilayer aspects: EU law, 95 outsider influence, 89–90 Parliament: Committee processes, 73–75 House of Lords, 75–77 Parliamentary control principle, 69–71 Parliamentary process, 72–73 rationalisation, 90–92 reform proposals, 90–91 weaknesses, 93–95 regional fiscal autonomy, 53–57 tax and high politics, 58–59 see also local taxation; Northern Ireland; Scotland; Wales responsive regulation: cooperative compliance, 119–20 Revenue Scotland and Tax Powers (Scotland) Act 2014, 43 right to a fair trial (ECHR Art. 6), 115–17, 120, 124–25, 129, 171 right to respect for private and family life (ECHR Art. 8), 116–17 Royal Commissions: tax policy formulations and development, 85–86 rule of law, 4, 26, 98, 127 Ramsay doctrine, 89 safeguards, 114–15 administrative protections: extra-legal complaint mechanisms, 119 individuation of tax compliance, 119–20 Taxpayer Charter, 118 balancing, 120–21 double reasonableness text, 120–21 human rights law: prohibition of discrimination, 117 protection of property, 115 right to a fair trial, 115–16 right to private and family life, 116–17 legitimate expectations, 117–18

Scotland, 38–39 1979 referendum on devolution, 39 1997 referendum on devolution, 39 Barnett formula, 43–44 Calman Commission: aggregates levy, 40 air passenger duty, 40 income tax, 40, 41 landfill tax, 40, 41 Scotland Act 2012, 41 stamp duty land tax, 40, 41 economic responsibility, 44–45 fiscal dependence on UK, 43–44 Fiscal Framework, 44–45 memoranda of understanding, 44 Scotland Act 1998, 39 Smith Commission, 41–42 aggregates levy, 42 air passenger duty, 42 economic responsibility, 44–45 income tax, 42 UK taxation compared, 42 VAT, 42 tax administration, 42–43 tax and high politics, 58 tax powers: aggregates levy, 40 air passenger duty, 40, 42 income tax, 39, 40, 42, 43 landfill tax, 40–41 reserved powers, 39–40 stamp duty land tax, 40–41 VAT, 42, 43 Scotland Act 1998, 33, 34, 39, 40, 42, 46, 48, 50 Scotland Act 2012, 41, 43, 47 Scotland Act 2016, 42, 47 self-assessment, 110–11, 128 Sewel Convention, 28, 34, 45, 150–51 Ship Money case (1637), 1, 6, 15–16, 17, 23, 160 Smith Commission (2014), 41–42 aggregates levy, 42 air passenger duty, 42 economic responsibility, 44–45 income tax, 42 UK taxation compared, 42 VAT, 42 social contract theory, 8–9 tax bargaining, 164–65 see also consent to taxation concept sovereignty, see Parliamentary sovereignty

198 Index stamp duty land tax, 59 Scotland, 40–41 Calman Commission, 40, 41 Wales, 47 state-building, 175–76 revenue imperative of institution building, 164–65 social contract based on tax bargaining, 164–65 tax, influence of: early literature, 9–11 fiscal sociology, 11–13 modern developed states, 13–15 statutory allowances, see allowances supremacy of EU law, see primacy of EU law tax administration: cash-flow advantage, 110 EU harmonisation measures, impact of, 109 evolution of tax administration, 101–2 accreting tax administration, 108–14 decentralised income tax administration, 102–4 finely detailed legislation, 107–8 juridification, 104–6 safeguards, 114–121 income tax: origins, 102–4 asset depreciation, 104 capital allowances, 104 merger of Inland Revenue and Customs & Excise, 108–9 OECD measures, impact of, 109 reallocation of resources, 110–11 Scotland, 42–43 Wales, 48–49 tax allowances, see allowances tax avoidance schemes: negative consequences, 111–12 tax evasion and, 111–12 Tax Collection and Management (Wales) Act 2016, 48 tax devolution, 63, 170–71 constitutional issues, 57 capacity building, 61–62 central control, 62–63 federalism, 59–61 high politics and devolution, 57–59 current tensions, 33–37 Miller No. 1 case, 34–35 Sewel Convention, 28, 34, 45, 150–51

West Lothian question, 35–36 Westminster supremacy, 33–34 historical overview, 31–33 institutions given previously EU legislative powers, 36–37 localism, 37–38 Northern Ireland: air passenger duty, 52 allocation of tax powers, 50 corporation tax, 52–53 customs regulation post-Brexit, 52 Good Friday Agreement, 50 Home Rule movement, 49–50 local taxation, 50 reinstatement of direct rule, 50–51 sectarian tensions, 49–50 Scotland, 38–39 1979 referendum, 39 1997 referendum, 39 aggregates levy, 40 air passenger duty, 40, 42 Barnett formula, 43–44 Calman Commission, 40–41 economic responsibility fiscal dependence on UK, 43–44 Fiscal Framework, 44–45 income tax, 39, 40, 42, 43 landfill tax, 40–41 memoranda of understanding, 44 reserved powers, 39–40 Scotland Act 1998, 39 Smith Commission, 41–42, 44–45 stamp duty land tax, 40–41 tax administration, 42–43 VAT, 42, 43 subnational devolution, 53–57 Wales: 1997 referendum, 46 Barnett formula, 46 conferred powers, 48 Fiscal Framework, 49 Government of Wales Act 1997, 46 historic integration of tax law, 45 Holtham Commission, 46–47 income tax, 47, 48 landfill tax, 47 local government finance, 46 local taxes, 46 reserved powers, 48 Silk Commission, 46–47 stamp duty land tax, 47 tax administration, 48–49

Index 199 tax evasion, 111–12, 113 tax information exchange agreement (TIEA), 148 tax law, relationship with state and citizens: dichotomy between funding government and individual rights, 128–29 normative foundations, 121–23 private emphasis within tax law: consent requirement, 125 Locke, 125–27 principle of equality, 127 property rights, 125–27 public interest protection of taxpayers, 125 public/private tensions, 122–23 public emphasis within tax law, 123 macro-economic policy decisions, 123–24 procedural protections of tax payers, 124–25 property rights, 124 tax law’s inherent integration with other fields, 5, 162 tax rates, 59, 62, 152 capital gains tax: taper relief, 94 corporation income tax, 140 double taxation, 145 European Convention on Human Rights, 115 Northern Ireland, 52 air passenger duty, 52 corporation tax, 53 Scotland, 40, 42 Wales, 45, 47, 48 tax relief: asset depreciation, 104 cross-border loss relief, 143 double taxation, 141, 147 Enterprise Zones, 54 Office for Tax Simplification, 87 retail relief, 63 taper relief, 94 tax thresholds, 59, 93 Scotland, 42

tax treaties, 141–42, 145–46, 147 double taxation treaties, 13 information exchange treaties, 149 tax tribunals, 7, 43, 121 Taxation (International and Other Provisions) Act 2010, 141–42 Taxpayer Charter, 118 technical approach to tax law, 4–5 transparency, 15, 19, 20–21, 26, 67, 71, 72, 84–85 trust, 120, 158, 166, 169 United Nations Act 1946, 132 US Foreign Account Tax Compliance Act (FACTA), 149 VAT, 10 cross-border VAT, 153 EU harmonisation, 142, 152 origins in UK, 21–22, 93, 139–40 Scotland, 42, 43, 58, 59, 62 Wales: 1997 referendum, 46 Barnett formula, 46 conferred powers, 48 Fiscal Framework, 49 Government of Wales Act 1997, 46 historic integration of tax law, 45 Holtham Commission, 46–47 income tax, 47, 48 landfill tax, 47 local government finance, 46 local taxes, 46 reserved powers, 48 Silk Commission, 46–47 stamp duty land tax, 47 tax administration, 48–49 tax and high politics, 58 Wales Act 2014, 47 Wales Act 2017, 48 West Lothian question, 35–36 World Trade Organization (WTO): most favoured nation principle, 159–60 World War I, 21, 106, 139, 145

200